Indians have a strong liking for real estate when it comes to investing. They believe that real estate prices will increase after they buy a property. However, the rising prices of real estate all over the country, including in big cities, small towns, and even rural areas, have made it hard for small buyers to enter this market.
But what if you could invest in commercial real estate without actually buying a property? Instead, you can buy a share for as little as Rs 100-Rs 400 per unit. This is where Real Estate Investment Trust (REIT) comes into play. A REIT allows small investors to invest in commercial real estate that would otherwise be difficult for them to access.
What are REITs
Seema Goyal, a Chandigarh-based insurance professional and a retail investor stated, “When REITs were first introduced in India in 2019, I couldn't invest initially because the required investment amount was high. However, now it is possible to invest as little as Rs 100 to Rs 400 per unit. Recently, I invested in a REIT and I am confident that it will provide me with favorable returns.”
Equivalent to how mutual funds invest individuals' money in securities like equity, debt, and money market instruments, REITs invest in real estate and are listed on the stock exchange. This enables investors to have exposure to real estate without the need to personally buy or manage properties.
REITs in India
REIT is a new concept in India. The draft regulations for REIT were introduced by the Securities and Exchange Board of India (SEBI) in 2007. The final REIT Regulations were enacted on September 26, 2014, after making significant changes.
The first REIT listed in India was Embassy Office Parks in April 2019, followed by Mindspace Business Parks REIT in August 2020, Brookfield India Real Estate REIT in early 2021, and Nexus Select Trust REIT in 2023. It is anticipated that many well-known real estate companies will introduce REITs in the near future.
The present involvement of individuals in REITs.
Currently, there are approximately 120,000 individual investors nationwide participating in REITs. Initially, the minimum investment required for an IPO subscription was Rs 200,000, and Rs 100,000 in the secondary market, which posed a challenge for individual investors.
However, in April 2019, SEBI reduced the minimum investment to Rs 50,000. Later, in August 2021, they further revised it to a 1:1 ratio, allowing investors to purchase one share based on its value.
How returns are generated
REITs make regular payouts to investors every quarter, which comes from the rental income earned by leasing out commercial real estate. After deducting certain expenses, at least 90% of this rental income must be paid to the investors, as mandated by SEBI.
Ritwik Bhattacharjee, chief investment officer, Embassy REIT says …investing in REITs offers retail investors two great advantages. First, investors receive regular payouts as at least 90% of the cash generated by the REITs is distributed to the unit holders. Second, investors also have the potential for capital appreciation because REITs are like stocks that provide high dividends and can grow in value through leasing vacant spaces, increasing rental rates, and renegotiating rental agreements to match or exceed market rates.
Performance of REITs
The four REITs together have a total equity market capitalization of approximately Rs 73,000 crore. They include 105 million square feet of commercial space across India's office and retail sectors.
A notable achievement for this asset class is that Indian REITs have surpassed Rs 12,000 crore in distributions since 2019, surpassing the combined dividends given by real estate companies in the entire Nifty Realty Index. This information comes from Embassy Office Parks officials.
Who Can Invest and How?
Investors of any type, including domestic, foreign portfolio investors (FPIs), retail, and institutional, can buy REIT units.
There is no minimum trading lot size requirement for investing in REIT units.
Investors can purchase REIT units through a demat account, similar to buying shares in a listed company.
Indian REIT units can be freely bought or sold on the NSE or BSE stock exchanges, either online or through a broker.
Investors have the option to participate in the initial public offering (IPO) or buy REIT units from the open market.
To invest in REITs, you can buy units on the stock market through a demat account. The price of REIT units fluctuates based on demand and the REIT's performance.
Investing in REITs through mutual funds is also possible, as some domestic mutual funds have started investing in REITs.
