What is REIT - Real Estate Investment Trusts
REIT, as we know by now, stands for Real Estate Investment Trusts. REITs own real estate properties which are profitable and allow you to invest small amounts in them and become a fractional owner. A brief introduction on REIT was given in our previous blog (What is REIT) and now we are trying to throw light on if one should invest in REIT .
REIT is new and holds a lot of promise, but that’s not enough as a reason to invest. But let’s look at it more objectively and probably by the end you’ll realize that the sooner you do, the better.
✓ REITs are regulated by SEBI, so the legitimacy is not a question of concern. The SEBI guidelines include stringent reporting and disclosure practices, which the REITs have to adhere to. Such transparency is good for the investor.
✓ REITs provide a very strong dividend flow. They are required to distribute at least 90% of their taxable income to their shareholders as dividend, which results in a substantial yield for the investors holding REIT funds.
✓ REITs allow the ease of entry and exit to the retail investor at any point of time, since it’s traded in listed units, similar to stocks. Therefore through fractional ownership, this gives flexibility in conventionally rigid avenues.
✓ REITs have lower liquidity risk, as a minimum of 80% of the assets are to be mandatorily invested in revenue-generating projects that are completed.
✓ REITs allow investors to earn income through
i) rentals received from properties owned in the REIT portfolio, which could be in the form of dividend income or interest income
ii) dividends generated from capital gains that are generated from the sale of commercial assets
iii) capital gains via sale of REIT units in the secondary market (read : like capital gains on trading equity shares)
A careful analysis concludes that an Investor can expect a rental yield of 7% to 9% plus capital appreciation of 4% to 5% over a long period in REIT investments i.e. total returns of 12% to 14%.
In times when the market is volatile, allocating your money in a safe basket of established and income producing tangible assets, is one of the things a smart investor would do. So we’ve listed all the reasons above that might help you realize the many benefits of an investment in REIT. But what are your investment options in REIT? Stay tuned for the next blog in the REIT series!