REITS (Real Estate Investment Trust Funds) sound pleasing to ears but most of us are unaware about this. It was implemented in 2014 under the Income Tax Act 1961 in our country. Cushman & Wakefield & RICS report says, “There is an investment opportunity worth $43 – $54 billion across India’s top eight cities including, Delhi-National Capital Region, Bengaluru, and Mumbai & Pune (Source: Economic Times). What is it? Is it going to bring a progressive change in the Indian real estate sector? Let’s find out here –
What is REITs?
REITS are trusts, which will own, operate and finance income producing commercial real estate. An investor can pour as minimum as Rs 2 lakh in the trust. The money from the varied stakeholders will be invested in the commercial real estate projects to generate income. The REITS encompass a principal valuer, a trustee, sponsor and manager.
Like shares and mutual funds, investors can pump money in the trust in the hope of a better return. Government has allowed investment in REITS to make the real estate sector much organized and transparent.
What are the benefits of REITs?
- Probability of high return – Commercial real estate pays a decent return in the long term. If we talk of the US market, there is an average annual return of 12.34% over the prior 5 year period (Source: Balance.com)
- Optimum distribution – As 80% of the money pooled from the investors will be pumped in revenue generated completed projects, significant return is expected from the investment. Only 20% of the amount will flow in mortgage based security, equity share of listed property etc.
- Safe – Investment in REITs is safe; established players with a minimum asset size of Rs. 1,000 crore will enter into the market. Rs. 250 crore has been set as the minimum initial offer for them.
- Unorganized sector benefit – The commercial real estate in India will get benefitted. As per a joint report named, ‘REIT – able Space in India: A Closer Reality’ REITs will benefit ’1.73 billion sq.ft occupied commercial real estate across retail, office & warehouse segments (Source: Hindu Business Line). There is a probability that REIT may own the real estate sector because most of the trusts would get their shares listed on the stock market.
Almost all the developed nations of the world such as Singapore, Japan, U.K., France & Australia have REITS in place. There was a roller coaster ride over the last decade in the Indian real estate sector. REITs may help in organizing the sector in much better way years ahead. The abolition of Foreign Investment Promotion Board (FIPB) will attract the inflow of foreign capital in India, and as result, the economy will be broader.