REITs: Real Estate Investment Trusts in India

A few months ago, Rakesh was sitting across from his friend, sipping coffee and updating him about his financial plans. "I plan to invest in real estate, but the upfront costs are exorbitant, and also, managing properties seems so cumbersome," he said. His friend, Anuj, smiled and said, "You know, you don't need to own property to invest in real estate. You can do it through REITs.

That set Rakesh thinking. REIT, or Real Estate Investment Trust, has finally emerged as a conduit for investment in rental income-generating commercial properties in India without taking all the hassles of purchasing and maintaining real estate. They came into existence in the year 2014 and are regulated by the Securities and Exchange Board of India. REIT enables individual investors to collectively invest in a diversified portfolio comprising different properties, such as office buildings, shopping malls, and warehouses. The best part? You do not need a load of capital, nor do you have to bother about the day-to-day management of such properties.

REITs are similar to stocks, wherein you actually invest in the units of companies operating in commercial real estate. Properties thereafter build income through rents and lease payments. REIT is bound to distribute at least 90% of its net income in the form of dividends to its investors. That means you will be earning a regular income from that investment, just like getting rent from the property you own, but in a much less cumbersome manner.

One of the biggest advantages REITs offer is diversification. Instead of investing in a single property that can be quite risky, REITs will give you exposure to a pool of different properties across office space, retail, and industries. This spreads out the risk so that one particular asset class does not dent your overall investment.

Other strengths of REITs include liquidity. As opposed to the directly held properties which could drag on for many months and even years when you have to sell, REITs have units trading on the exchanges. In this case, investors are afforded flexibility concerning exiting quickly or achieving a strategic objective of long-term positioning.

REITs also provide easy access to the real estate market, at a rather low threshold of investment. You do not need to have millions to start investing in real estate; instead, you can buy units of REITs much like stocks, often for a fraction of what one property would cost.

For investors seeking regular income, REITs have become very attractive. Since they must pay out 90% of their net income to investors, they yield a regular stream of dividends, hence making them a very attractive choice for those in search of passive income or looking to diversify a portfolio with income-generating assets.

Conclusion

Whether you're like Rakesh-invested in real estate but not wanting to deal with the headaches of property management or are just beginning to look for ways to invest in a stable, income-producing asset, REITs offer a simple, efficient solution. They offer all the benefits of real estate investing-diversification, income, and exposure to large commercial properties the heavy financial commitment or headaches of owning property yourself. The next chapter shall explain the role of gold in an investment portfolio, comparing physical gold with digital gold to help you decide on the best way of preserving wealth.