Real Estate Investment Trust: Affordable Real Estate?

“ Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy”

- Marshall Field, an entrepreneur.

What do you think? Well what I think is,

Do you ever have the desire to purchase some real estate? I, personally, would love to own a building to my name (Tony Stark intensifies)! Now if you want to be a fellow "Bhuswami" like me, you might wonder, "How do I own real estate without breaking the bank?"🤨 

No problem😌! As I had mentioned in this article, consider me as your personal genie.🧞

Well, I stick to my word. So I will assist you by letting you know about an unknown investment path that involves real estate ownership.

Okay, so we all know about traditional investment options like bank deposits, stock markets, and mutual funds. And now you can start your real estate investing career too with just ₹10,000 to ₹15,000 in your bank account! Yes, you heard right! 

Start small, expand, and watch your money📈. Keep in mind that often the most spectacular adventures begin with the smallest beginnings in the world of investment prospects! 

Also before we get started, in case you own Tata Motors shares or are interested in knowing about the impact of cancellation of DVRs, click here.

Coming back, you might want to consider looking into REITs! Let’s see..

What is a REIT?

Similar to purchasing stock in a firm, a REIT or Real Estate Investment Trust is a business that owns or funds income-producing real estate. The professional real estate gurus use the money they aggregate from investors to buy and manage properties. You receive a percentage of the money they generate from renting out or selling real estate as a stakeholder. 

Since their shares are sold on stock markets, it is quite simple for anyone to enter the real estate market without having to spend a great deal of money.

Oh, and did I say diversity? REITs share their love of real estate across various real estate sectors, reducing the risk of putting all your eggs in one fancy penthouse. 

Next option is,

What are InvITs?

InvITs or Infrastructure Investment Trusts are similar in structure to REITs, but instead of investing in real estate, they focus on infrastructure projects. Think of highways, power transmission lines, airports, bridges, and other such income-generating infrastructure assets.

So how does it work? 

They break down large, expensive infrastructure projects into manageable bits (units) for investors like you and me to purchase. These units are then traded on the stock exchanges, making it easy for anyone to become a proud owner of a tiny fraction of major infrastructure assets.

What makes someone want to invest in InvITs, then? Well, first of all, it enables you to take part in the expansion and development of important national infrastructure. Secondly, it presents a chance to make a consistent income because of the reliable cash flow from these necessary initiatives.

Take a quick glance at the graph below to learn more about the Real Estate sector in India's growth potential:

The market size is estimated to reach $1000 billion, equivalent to ₹8,28,45,00,00,00,000.02😵‍💫

Moving on, 

Criteria a company needs to fulfill in order to be a REIT

Let us look at the criteria that real estate companies must meet in order to be qualified as a REIT in India.

1. A REIT must derive at least 75% of its total income from real estate-related sources, such as rent, mortgage interest, or real estate sales.
2. The company's assets must consist of at least 75% real estate-related assets, which may include real property, mortgages on real property, or shares in other REITs.
3. After its first year of existence, a REIT must have a minimum of 100 shareholders, and no more than half of its shares can be owned by five or fewer individuals to avoid being closely held.
4. A REIT is required to distribute a minimum of 90% of its taxable income to its shareholders in the form of dividends.
5. While a REIT is initially taxed as a corporation, it can choose to be taxed as a pass-through entity by meeting specific criteria.
6. The management of a REIT must be overseen by a board of directors, including at least one independent director.

How to invest in REIT in India?

Making an investment in a REIT is simple. In a manner similar to how stocks are listed and traded on the stock exchange, REITs are likewise, and you can purchase REITs using your brokerage account.

There are several ways to invest in REITs in India:
1. Direct Stocks: Acquiring their stocks will give you direct ownership of listed REITs when you invest directly in them.
2. Exchange-Traded Funds (ETFs): Choose REITs as ETFs to gain diversity and reap the advantages of indirect ownership of properties.
3. Mutual Funds: Through mutual funds provided by reputable fund houses, you can diversify your investments by purchasing a unit of a REIT.

When everything is ready, choose your desired REIT, check the required minimum investment, and complete your purchase with a single click. REITs are provided by a number of stockbrokers and mutual fund websites, giving you the flexibility to choose your preferred avenue for making the investment. 

Now that we have explored the process of investing in REITs and understood the requirements and options available, let's take a closer look at the…

Investment Options in India

The process of choosing the best Real Estate Investment Trust (REIT) can be compared to the process of selecting a favorite ice cream flavor - it depends on personal preference and needs. Diverse investment objectives, risk tolerances, and property interests are addressed by different types of REITs, which you can read here.
 
In order to help you make an educated investing decision, I have gathered information on three notable REITs that are currently listed on the exchange:

1. Brookfield India REIT: Brookfield India REIT has a track record of solid performance in the Indian real estate market. With a diverse portfolio of commercial properties, including office spaces, retail outlets, and logistics centers, it offers investors exposure to various segments of the real estate sector. Brookfield's prudent management and strategic asset selection have contributed to its steady growth and attractive dividend yields.

2. Embassy Office REIT: Embassy Office REIT is renowned for its focus on prime commercial office spaces in India. Its properties are strategically located in major business hubs, making it an attractive option for investors seeking stable and rental income-focused returns. Embassy's consistent occupancy rates and long-term leases with reputed corporate tenants instill confidence in its ability to generate consistent cash flows.

3. Mindspace Business REIT: Mindspace Business REIT boasts a strong presence in the Indian office space market. Its portfolio primarily comprises well-located, high-quality IT parks catering to leading IT and corporate tenants. The REIT's performance has been notable, with a history of robust rental income and capital appreciation potential due to the demand for IT-centric spaces in India's growing digital economy.

I strongly advise doing more study to match your investing goals, risk tolerance, and preferred types of properties with the distinctive qualities and track records of each REIT. By conducting in-depth research, you might find the REIT that best suits your financial objectives.

My Vishesh Tippani on REITs

Although REITs, in my opinion, have a great growth potential, they are not as well known in India as they are in other nations. It's fair to say that the Indian REIT sector is still in its infancy, which leaves potential investors with few investment possibilities. Lack of historical data on the performance and returns of Indian REITs is a big obstacle that makes it challenging for investors to evaluate their potential.

Despite the current constraints, it's important to keep an eye on the evolving landscape of REITs in India. As the market matures and more REITs are introduced, investors may have a broader range of choices and a better understanding of their past performance. Until then, careful consideration and research are vital for those considering REIT investments in India. By staying informed and monitoring developments in the market, investors can position themselves for potential opportunities in this exciting and dynamic sector.

The Bottom Line

In a nutshell REITs provide a fascinating investing opportunity by enabling you to own a portion of a variety of real estate assets. They can provide strength and diversification to your investment portfolio by generating a consistent income. They do, however, have dangers, so before making an investment, do your research and think about your financial objectives.

Concluding today’s article with another Vishesh Tippani, if you don’t want to invest at all then simply buy a bunch of LEGO bricks, build your dream house virtually, and call it your "imaginary property portfolio". It's cheaper and tidier! Anyways, keep smiling and investing my fellow wannabe real estate tycoons!