Real Estate Investment: Real estate has always been the biggest investment dream for most Indians. But to be honest, buying a flat or office space is not easy. One has to bear heavy down payment, long EMI and a lot of paperwork. In such a situation, Real Estate Investment Trusts (REITs) have emerged as a wise option. These give you an opportunity to invest money in the property market, that too without owning any land or building.
What are REITs?
You can think of REIT like a mutual fund. The only difference is that instead of stocks or bonds, it pools the money of many investors and invests it in big commercial projects. Such as office building, mall, hotel or warehouse. The rent they earn is distributed among REIT investors in the form of dividends.
Growing popularity of REITs
There are currently only a few REITs listed in India. Such as Embassy Office Parks, Mindspace Business Parks and Brookfield India. But their popularity is increasing rapidly. Today when property prices in big cities are skyrocketing. In such a situation, REITs give an opportunity to small investors that they can start with just ₹ 10,000.
The best thing is that they are listed on the stock exchange, which means they can be bought or sold anytime like shares. Because of this they are much more liquid (easier to convert into cash) than traditional property investments.
How do REITs earn?
There are two main ways to earn from REITs. First, you get a share of the regular dividends from rental income, i.e. the rent that comes from buildings. Second, there is benefit from capital gains when the price of REIT units increases.
Listed REITs in India are required to distribute at least 90% of their net distributable cash flow to investors, hence offering good potential for regular income.
What are the risks in REITs?
REITs are not completely safe. Their performance depends on the amount of office and retail space occupied and the rental demand. If companies reduce office space or footfall in malls decreases, rental income may decline.
Since they are traded in the market, their prices can fluctuate with changes in interest rates or investor mood.
How to Invest in REITs in India
Investing in REITs is very easy. You can buy REIT units directly through NSE or BSE, just like shares are bought. Or you can invest in mutual fund schemes that invest money in REITs.
It has low entry costs, almost no paperwork, and you get the benefit of investing in multiple good properties at once.
Also read: Gold vs equity vs property: Gold, stock market or property… which gave the highest returns in 10 years?
Disclaimer: The information provided here is being given for information only. It is important to mention here that investing in the market is subject to market risks. As an investor, always consult an expert before investing money. Moneycontrol never advises anyone to invest money here.