Are Real Estate Investment Trusts the Future of Indian Realty?Gaya Mahesh, July 12, 2021 | Reading Time: 5 minutes
Real Estate Investment Trusts (or REITs) are a fairly new concept in India. Introduced by the SEBI in 2007, REITs are one of the best ways to invest in real estate. Given the instability of the economy in this crisis, the important question becomes: are real estate investment trusts the future of Indian realty?
What are REITs?
Real Estate Investment Trusts (REITs) are a concept developed in the 1960s in America. It allows for investment in land and presented the opportunity of reaping huge dividends on the investments made. This allows rewards the investors financially and allows for better developments in an expanding sector such as real estate.
Advantages of investing in REITs
There are many advantages to investing in REITs. Apart from the burgeoning dividends and capital gains, a few other advantages such as transparency of transactions, diversification of portfolio, and low risk involved while investing make REITs a suitable platform of investment. This also means that REITs are useful when thinking of expanding one’s investment portfolio.
REITs reduce the hassle of having to manage real estate transactions by yourself. Properties owned by a REIT are managed professionally. This ensures smooth operations and transparent transactions throughout the lifetime of the investment cycle.
REITs are an exceptional way of diversifying your investment portfolio. REIT investments go beyond the usual asset investments such as gold, equity, stocks etc. Since REITs are practically hassle free, they also allow for better use of your time when designing your asset allocation strategy.
Real Estate has always been the preferred type of investment for buyers. REITs, because of their nature, allow to become a type of low-risk asset. This means that REITs require a much smaller initial investment of around Rs. 50,000 to provide similar portfolio diversification benefits as Real Estate Investments.
Limitations of investing in REITs
The investors of REITs in India have very limited options. Further, there are 3 REITs and 1 International REIT Fund in India. This significantly limits the options for investing in Indian REITs.
There is low liquidity of investments in REITs. While REITs are listed on the market, there are limited number of participants, making the competition low and the liquidity low.
Introduction of RERA has made REITs a profitable platform to invest in. Further, RERA has also made the investment process in real estate more transparent. Finally, the list of criteria that SEBI released for trusts to follow provide an excellent pathway for REITs to make an impression in the Indian real estate sector.
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