REITs: New Investment Option For Real Estate Bulls

If you had Rs 2 lakh and are bullish about real estate, there are only two options for you at present: invest in stocks of realty companies or go along with unorganised investments in land. Soon, you may have another option, as the government has allowed Indian companies to launch real estate investment trusts or REITs. While creating a new avenue for investors, REITs would also enable developers easier access to funds.

What is a REIT?

Investing in a REITs is like investing in a mutual fund for real estate. Like a mutual fund, a REIT will pool money from investors like you and this money will be collectively invested in a real estate project. Under the final draft guidelines by the Security and Exchange Board of India (Sebi) released last year, the minimum amount for investing in a REIT is Rs 2 lakh. Like a mutual fund, a real estate expert will direct the proceeds in choicest realty investment that bring in the best of returns. The returns are then divided among investors.

 A look at how REITs will help investors:

 A REIT will be a safe bet, as the stock market regulator is planning to allow it only for commercial real estate. Even among these, 80 per cent of the investment should be in rent-earning properties.

An investor will be able to regularly track how a REIT is performing. REITs will also be traded on the stock exchanges; this would pressure REITs to make astute investment decisions. Also, this kind of investment will not have the stress of an EMI.

The possibility of being able to invest in commercial realty remains a dream for many. The ticket size for investment in shops or commercial buildings involves tens of lakhs, and the loans for such properties are also tough to find at good rates. REITs open the avenue of commercial realty for investors. 

REITs will also allow investors to judiciously allocate funds across investment classes. The expected returns of a stable asset class like realty would be much higher than stocks, especially in the long-term.

Once money is invested in a real estate venture, it is not easy to exit. REITs also take away the disadvantage of illiquid nature of such investments. As they are traded on exchanges, they allow investors to make quick purchases and swift exits.

Due to the size of investments in REITs, they would have classified investors who are fewer in number with higher spending ability. It takes away the 'mass' element out of trading, ensuring that the prices of such securities are not extremely volatile. It is an extra assurance that the value of investment in REITs won't sway vigorously due to market sentiments.