India has three listed Real Estate Investment Trusts (REITs), but all in commercial real estate. This underlines that there is tremendous scope for expansion in the long run. There is a possibility to introduce more areas of real estate such as retail, residential and hospitals, among others.
So, what exactly are REITs? Simply put, REITs are an equity asset similar to a fund, which invests in real-estate-related assets such as commercial office space buildings, corporate parks, shopping malls and retail stores and warehouses. REITs as an entity lease out these commercial spaces.
REITs extend an option to small investors to earn from large real estate with the advantage of small ticket-size investments and stability of rental income.
Investors in initial public offerings (IPOs) of REITs have made gains of about 9-14% in total returns.
Ideally, it is advised for an investor to keep an eye on the consistency of distributable income over the last few quarters. After this, compare it to the overall post-tax yield against the next debt investment alternative.
Taking into account the merits of asset diversification, tax efficiency and regular returns, among others, REIT is suitable for investors who look for diversification along with a product between pure equity and debt entry.
An investor in REIT needs to keep a close watch as commercial property REITs need to maintain high long-term lease occupation, which is crucial.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.