REITs must distribute a significant portion of their earnings as dividends to shareholders, making them appealing to income-seeking investors.
A Real Estate Investment Trust (REIT) in India is a business that owns, operates, or finances income-producing real estate in one or more property sectors, REITs enable investors to pool their funds and invest in a diverse portfolio of real estate assets. These assets may include office buildings, shopping malls, residential properties, and hotels.
In India, the Securities and Exchange Board of India (SEBI) introduced REITs in 2014 to allow investors to invest in the Indian real estate market without directly owning the properties.
REITs must distribute a significant portion of their earnings as dividends to shareholders, making them appealing to income-seeking investors.
REITs are organized into three tiers: sponsors, trustees, and managers.
- The sponsor initiates the formation of the REIT by transferring their owned properties or real estate to the trust. Typically, real estate developers seeking capital act as REIT sponsors.
- The sponsor appoints the trustee who holds the assets for unitholders.
- The trustee appoints a manager to oversee REIT assets and make investment decisions. Typically, the manager is a privately held company closely related to the sponsor.
How do real estate investment trusts work in India?
Consider a REIT to be a real estate-specific mutual fund. Here’s a sample breakdown:
- Investors like you can contribute funds to the REIT.
- The REIT invests this money in income-producing real estate.
- The income from rents and other sources is distributed to investors as dividends, typically around 90% of their earnings as mandated by SEBI.
Can you invest in India’s REITs?
Yes, REITs are listed on the stock exchange, allowing you to buy and sell units like stock. This makes it an attractive option for individuals looking to invest in real estate without the hassle of directly purchasing and managing properties. To invest in a REIT in India, you must typically purchase REIT units through a stockbroker, just as you would buy stock in a company. REIT units trade on stock exchanges, providing investors with liquidity. However, it is critical to conduct extensive research and understand the risks of investing in REITs, such as market fluctuations, interest rate changes, and property market conditions.
REITs in India
According to Sebi’s official website, India currently has five registered REITs. These include Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust, and One Real Estate Investment Trust.
Here are some additional points to consider:
- REITs are a relatively new instrument in India, with the first launched in 2014.
- There are various REITs, each with a specific property (office, retail, etc.).
- Additionally, consider consulting with a financial advisor to determine if REITs align with your investment goals and risk tolerance.