Guidelines

The novice’s guide on the REIT

1:34 PM

The novice’s guide on the REIT

While REITs are yet to pick up momentum in India's realty market, here are some basics one must know

ONE of the main decisions of the government that was lauded by the real estate industry at large was the sanction given to REITs. Real Estate Investment Trusts are present in many countries across the globe to enable small time investors to put their money in real estate.

In India, REITs has made it possible even for people with small amount like Rs 2- 3 lakhs to invest in real estate. Like mutual funds, REITs collect money from a number of investors and invest it in suitable properties. Most of the money will be put in commercial real estate across the country. As per the SEBI guidelines, a REIT has to first register itself and then raise funds through an initial IPO. Arvind Jain, MD, Pride Group says, " REITs are a unique method of investing in real estate that can potentially generate much higher yields than stocks and bonds. Since they are not prone to the kind of fluctuations one typically observes in the stock market, they present investors with a higher margin of safety. They also generate capital gains and represent a stable income source."

How it functions… 
REIT is an entity that owns and operates real estate like residential projects, malls, hotels, commercial office buildings and warehouses.

" This means that the company buys, develops, manages and sells real estate assets with the sole purpose of inviting investors to put their money into a professionally managed portfolio of properties," explains Jain. Like stocks, investors can buy REITs from primary and secondary markets.

If someone wants to put money in an IPO, the minimum amount is Rs two lakhs.

While the returns seem to be handsome, investors have to keep in mind a few important factors. In India, REITs will concentrate on properties in commercial, hospitality, retail, industrial and mixed- use realty developments. " However, it should not be assumed that REITs will result in the availability of an instant wealth- building instrument for investors," says Jain.

Transparency
One of the highlights of REITs is that they will be strictly regulated by SEBI. Most of the investments have to be made in ready for possession properties i. e. ones that generate revenue. Sponsor, trustee or manager of a REIT cannot be an associate. Plus, the sponsors have to hold 25% of the units for the initial three years of a REIT.

Pros and cons 
Small- time investors, who could not dream of investing in real estate can now earn money from real estate. Moreover, like mutual funds, one does not need expertise or knowledge of the stock market to excel in REITs. Small investors can earn more returns than what they get from traditional instruments like fixed deposits.

At times, investors also get tax exemptions. There are two types of income from REITs.

One of them is capital gain that comes from the sale of a REIT unit and other through dividend income.


Source :- Mid-day

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