I have seen many people willing to invest in real estate but are unable to do so, because of lack of funds or simply don’t invest because of involvement of huge registration and other transactional costs. This is because of misconception that in order to invest in real estate one actually needs to buy any real estate property, but actually there is no such need to buy property for investing in real estate, money can be invested through REITs. So, to invest in real estate all you need to have is a demat account.
If you are planning to invest in property then this article is very relevant for you. Generally, people invest in real estate for rental income or capital appreciation, hoping for the increase in property prices in future. However, through the Real Estate Investment Trust (REIT), you can take advantage of investing in a property without having to physically invest in it. Now there must be a question arising in your minds about what is REIT and how an investment made in REIT is an investment in real estate. Let’s know about it in detail.
What is REIT?
REITs are similar to mutual funds where investors invest in real estate as an underlying security. This means that REITs invest the money you mobilize in such properties where the probability of profit or rental income is highest. However, in some cases it is also different from mutual funds. In fact REIT is a trust that makes money in real estate through Special Purpose Vehicle (SPV). Just like other form of trusts, REIT consists of three units – sponsor, manager and trustees. Activities of REITs in Indian capital market are regulated by SEBI (Real estate investment trust) regulations, 2014.
Investment advantages in REIT-
Through REIT, you can invest in the commercial properties of the country. In India, REITs are allowed to invest only in commercial properties. Therefore, as an investor you can invest in various SEZs, offices, malls etc. in the country. This segment has seen good growth over the last few years, and in future also we can expect better returns.
Diversification of investment portfolio is very helpful, Just like you diversify your investment in equity, debt or gold, you can invest in REIT without investing heavily. Investing in different asset classes will reduce the risk of your investment. REITs have provided a positive push to the Indian capital market, real estate and infrastructure sector and have provided significant liquidity to real estate and infrastructure players.
How to invest in REIT?
You must have a demat account to invest in REIT. Recently, the IPO of Ambasi REIT came in which the minimum investment amount was fixed at 2.4 lakhs. However, market regulator SEBI have now reduced the minimum investment amount to Rs 50,000 in REIT.
Which investors should do invest in REIT
Investors who are running at least 3 to 5 years’ time frame should consider investing in REIT. Unlike equity shares, there is no immediate growth prospects in REITS, just like any other form of investment in real estate it takes certain amount of time for significant returns. As rental income increases, their returns will continue to increase.