In Brief

Owning property has always been the most popular investment option. But there's a limit to the extent of real estate a common man can own - a house, maybe two, a bit of land, a pair of shops.. seems exhaustive already! But these limits are a thing of the past now - because of REIT.

  • A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing properties.
  • REITs generate a gentle income stream for investors but offer little in the way of capital appreciation.
  • Most REITs are publicly traded like stocks, which makes them highly liquid (unlike physical land investments).
  • REITs invest in most land property types, including apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses.

How REITs Works

Congress established REITs in 1960 as an amendment to the Cigar excise Extension. the supply allows investors to buy shares in commercial real estate portfolios—something that was previously available only to wealthy individuals and through large financial intermediaries. Property during a REIT portfolio may include apartment complexes, data centers, healthcare facilities, hotels, infrastructure—in the shape of fiber cables, cell towers, and energy pipelines—office buildings, retail centers, self-storage, timberland, and warehouses.

In general, REITs concentrate on a specific real estate sector. However, diversified and specialty REITs may hold differing types of properties in their portfolios, like a REIT that consists of both office and retail properties.

Many REITs are publicly traded on major securities exchanges, and investors can purchase and sell them like stocks throughout the trading session. These REITs typically trade under substantial volume and are considered very liquid instruments

In layman's terms, REITs own real estate properties that are profitable- Prominent office spaces pulling in steady rent, Retail real estate, Healthcare, Industrial & Residential properties- and permit you to invest small amounts in them and become a fractional owner.

Sounds familiar? Yes! Put simply, it does resemble what mutual funds do, but in a different sector. Where mutual funds have equity stocks in their portfolio, REITs have land properties in their portfolio. REITs are comparatively new to the Indian market, but they're quickly gaining traction. Like mutual funds which facilitate your investing small amounts of money through them into otherwise expensive blue-chip stocks, REIT solved the complex problem of the overall masses being able to own high-value real estate properties, by now providing a medium for fractional ownership.

What are the Types of REITs?

Mentioned below are some of the commonly available varieties of REITs in India:

  • Equity REITs: These REITs primarily invest in offices, residential complexes, industrial estates, hotels, etc. They buy, manage, set up and sell real estate. The income earned is distributed to investors as dividends. Income is mostly generated through rentals and the sale of properties. 
  • Mortgage REITs: These REITs loan out money to buyers of real estate, and some may even buy out existing mortgages. They are also referred to as REITs. These derive income from the interest received through mortgage loans. They work somewhat like a debt mutual fund, however, the risk component is often higher in REITs.
  • Retail REITs: Retail REITs invest in the retail segment like shopping malls, grocery stores, hypermarkets, supermarkets, etc. However, retail REITs do not run these retail outlets. They only focus on renting out the space to various retail tenants. Returns in this case depend on the performance of the retail sector. 
  • Residential REITs: Residential REITs buy and operate apartment buildings, gated communities, and other such housing establishments. Whenever the residential property demand in India grows, these REITs reflect positive growth.
  • Healthcare REITs: Healthcare REITs invest in real estate for hospitals, medical establishments, health clinics, etc. Since the demand for healthcare services has been on a rise in the last few years, these REITs present a good investment opportunity for investors.
  • Office REITs: These REITs focus on office properties and earn rental income.

This is all the basics of what is REIT - decoded for you. Hope this helps you understand that this new - and seemingly obscure concept - is really quite easy. However, there are still several technicalities - the taxation in REIT, the minimum investment in REIT, the main players in REIT & more that you would need to explore. All of those blogs will be uploaded soon. Stay tuned - we are visiting to simplify all of REIT for you!

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