Should you invest in REITs; here are key reasons
India is expected to witness listing of its first REIT by the end of 2017 or early 2018, but should you invest in this investment instrument and how beneficial it is?
With an aim to garner more funds in cash crunch real estate sector of India, capital markets regulator Sebi had announced REITs last November which will enable investors to invest money into the country's property market that in turn will provide finance to developers to execute their projects on timely basis.
The Care Ratings agency in its latest report dated April 3 this year has predicted the country to witness listing of its first REIT by the end of 2017 or early 2018.
As compared to foreign countries like US, Australia, others the implementation of REITs in the country is still at a nascent stage and is yet to see any listing owing to regulatory, legislative and taxation related issues, it said.
The size of REIT list-able A-Grade commercial real estate property is around Rs 2.75-3 lakh crore in the Indian markets.
ALSO READ: SEBI to allow mutual funds to invest in REITs, InvITs
Real Estate Investment Trusts (REITs) are investment instruments for real estate which are comparable to a mutual fund.
The property investment instrument allows anyone to invest in portfolios of large-scale properties in the same way they invest in other industries through purchase of stock.
In the same way shareholders benefit by owning stocks in other corporations - the unit holders of a REIT earn a share of the income produced through real estate investment – without actually having to buy or finance property.
REITs own underlying assets in the form of commercial properties such as office spaces, hospitals, warehouses, hotels and special economic zones, convention centers etc.
Here are key reasons for investing in REITs:
1. Income/Dividends:
Investors in REITs will get 90% of distributable cash once or twice in a year
2. Transparency and accountability:
REITs will have to disclose the full valuation on a yearly basis and half-yearly basis while they operate under the same rules as other public companies for securities regulatory and financial reporting purposes
3. Diversification in realty portfolio:
As per guidelines, REITs will have to invest in a minimum of two projects with 60% asset value in a single project. This makes the portfolio fairly diversified looking at the nature of underlying asset, that is real estate
4. Lower risk:
At least 80% of the capital will have to be invested into revenue-generating and completed projects.The remaining 20% could include properties like under construction projects, equity shares of the listed properties, mortgage-based securities, Government securities, money market instruments, cash equivalents and real estate related activities. With 80% of the assets being revenue generating, the value of these assets as well as the revenue would continue
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.