An Explainer: REIT

Real Estate Investment Trusts (REITs) allow people to invest in real estate by issuing securities that are listed on major stock exchanges. Portfolios of REITs may represent real estate or mortgages.

PropGuide Explains REIT Real estate assets are not considered liquid assets because it is not easy to quickly convert them into hard cash, without any loss in its value. It is extremely difficult for an Indian of limited means to invest in real estate assets across the world, or even the country. So, it is also difficult to maintain a diversified portfolio while investing in real estate assets. But, REITs issue securities that allow real estate investors to invest in a diversified portfolio. This also makes it easier for investors to hold assets that they can more easily convert into cash. By investing in REITs, investors can also earn regular income because they make regular dividend payments.

REITs invest in a wide range of properties, including commercial property. Equity REITs invest in or own real estate assets while Mortgage REITs either lend money to people who buy real estate assets or invest in mortgages of the mortgage-backed securities.

REITs are very successful in countries like Singapore and United States, and enjoy many tax benefits. The yield from investing in REITs is also often higher than that of traditional asset classes.

India does not have any REIT yet because the taxation and regulatory norms makes the formation of REITs difficult. But, the government had recently eased norms governing REITs like lowering minimum alternate tax (MAT) . They were also exempted from long-term capital gains tax, though short term capital gains tax still apply to them. India is expected to see its first REIT in 2015.

Check out PropGuide's comprehensive guide to real estate terms here.

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