To minimise risk in an investment portfolio, it is essential to prioritize diversification. Lots of investment options are available, is it worth considering REITs as an investment option let’s check.
REITs, The Real Estate Infrastructure Trust, offers an alternative avenue for real estate investment, particularly appealing to individuals with limited funds who may be unable to purchase land, buildings, or commercial properties outright. Historically, only wealthy investors with substantial amounts of money could engage in real estate investments.
REITs are essentially companies that own or oversee real estate assets. The rent and capital gain generated by these investments are distributed as dividends among the shareholders.
REITs are investment funds that directly invest in various real estate assets such as commercial lands, residential complexes, stocks of real estate companies, corporate properties, and agricultural lands. These funds provide investors with an option to invest in these Income generating properties through REITs. The fund is professionally managed by experts who aim to generate favourable returns for investors. In India, REIT funds offer capital to real estate companies involved in property development and management. As these real estate companies thrive, the fund also benefits financially. Investing in real estate funds allows individuals to earn dividend income, which serves as a valuable source of passive income.
Some criteria need to be followed by the company to qualify as REIT
- 90% of income to be distributed to investors as dividends
- At least 80% of investments must be in income-generating properties
- No more than 10% of investments can be in properties under construction
- The minimum asset base of Rs 500 Crores
- NAVs must be updated Semi-annually
Advantages of investing in REITs
- An investor can invest a small amount of money in REITs, allowed to buy a single unit too
- Suitable for both Small & Large investors
- Listed in Indian Stock Exchange, hence regulated by SEBI
- Offers Passive Income through dividend
- Diversification of investment portfolio
Distribution to Unitholders:
|Company||FY2019||FY2020||FY2021||FY2022||FY2023||Total Distribution Since Listing (Millions)|
|Embassy Office Parks REIT||8797||18821||18364||20626||20580||87188|
|Mindspace Business Parks REIT||–||–||5687||10941||11327||27955|
|Brookfield India Real Estate Trust REIT||–||–||–||5147||6769||11916|
* Nexus REITs listed in the month of May 2023
- Embassy Office Parks REIT: Embassy Office Parks REIT is a prominent entity in India that specializes in owning, operating, and investing in income-generating real estate and associated assets. Notably, it holds the distinction of being the country’s first publicly listed REIT and is also the largest official REIT in terms of area across Asia. As a Real Estate Investment Trust, Embassy Office Parks REIT offers investors the opportunity to access the advantages of real estate investment through publicly traded units, providing them with greater flexibility and ease of investment.
- Mindpace Business Parks REIT: Mindspace REIT is a Real Estate Investment Trust listed in India, operating in accordance with the SEBI Real Estate Investment Trust Regulations of 2014. Its main focus lies in owning and managing Grade-A office portfolio assets that generate rental income. As a registered Trust, it has been listed through a public offering of units. The K Raheja Corp Group serves as the sponsor, contributing to its establishment and ongoing operations.
- Brookfield India Real Estate Trust REIT: Brookfield India Real Estate Trust REIT is a commercial real estate entity based in India. The trust specializes in managing a portfolio of office parks in a campus format. These commercial assets are strategically situated in prominent locations such as Mumbai, Gurgaon, Noida, and Kolkata.
- Nexus Select Trust REIT: Nexus Select Trust holds the distinction of being the owner of India’s premier consumption centre platform, comprising top-tier assets that function as crucial consumption infrastructure. It is recognized as the first publicly listed REIT in India specifically focused on consumption centres.It is a newly listed REIT in India in May 2023.
REITs offer individual investors the opportunity to earn a portion of the income generated from owning commercial real estate, without the need to directly purchase the properties themselves. Individuals seeking exposure to the real estate market should consider exploring these investment vehicles, particularly through Initial Public Offerings (IPOs).
Today REITs are not that much discovered and explored by market participants. With the evolution of the REIT market, a greater number of investors will come to recognize the role of REITs in their long-term investment portfolios, leading to improved understanding and appreciation. Furthermore, as the market matures, there will be enhanced price discovery for listed REIT entities, bringing additional benefits to investors.