Real Estate Investment Trust India: 5 Reasons to Invest
Because of its accessibility and simplicity, Real Estate Investment Trusts (REITs) have become a more and more popular investment option in India. Investment entities that let investors purchase income-producing real estate assets are called Real Estate Investment Trusts, or REITs. The Securities and Exchange Board of India (SEBI) overseas REITs in India, where they are becoming more and more well-liked by both institutional and retail investors.
A group of friends who decide to combine their funds to purchase a rental property would be a basic example of a REIT. In exchange for a certain financial contribution, each buddy would get a portion of the rental revenue the property brought in. This functions similarly to a REIT, but on a much bigger scale.
This post will give you advice on how to invest in Real Estate Investment Trusts (REITs) in India, along with details on the advantages of doing so and the tax advantages of purchasing REIT funds.
Table of Contents:
- What Are REITs?
- Why are Real Estate Investment Trusts (REITs) a Reputable Source of Income in India?
- Important Reasons to Invest in Real Estate Investment Trusts India:
- What Is The Number of Listed Real Estate Investment Trusts in India?
- How Do I Make Investments In Indian Real Estate Investment Trusts?
What Are REITs?
In India, businesses that own and manage income-producing real estate assets are known as Real Estate Investment Trusts, or REITs. These resources may take the shape of office buildings, retail centres, residences, hotels, and warehouses. A REIT allows investors to purchase shares, entitling them to a percentage of the income produced by the underlying assets.
Why are Real Estate Investment Trusts (REITs) a Reputable Source of Income in India?
The benefits of real estate investment trusts (REITs) enable investors to make money by renting out their buildings to tenants and collecting rental revenue, all without the burden of physical property ownership. Dividends from this rental income are subsequently given to investors. As lease rates rise or occupancy rates improve, REITs may see an increase in rental income over time. In order to boost investment in the real estate industry and give liquidity to the Indian real estate market, REITs were introduced in 2014. They also give investors tax advantages. The following are some of the main elements that contribute to REITs being a wise investment in India:
- With the potential to yield an annual return of about 14%, real estate investment trusts (REITs) are a desirable investment choice in India.
- Because they are free from capital gains and rental income taxes in India, real estate investment trusts (REITs) are a cost-effective way to invest.
In India, Real Estate Investment Trusts, or REITs, make money in the following ways:
1. Rental Income
By renting out their properties to tenants and collecting rental income, REITs make money. Dividends from this rental income are subsequently given to investors. As lease rates rise or occupancy rates improve, REITs may see an increase in rental income over time.
2. Capital Appreciation
By purchasing buildings that increase in value over time, real estate investment trusts (REITs) in India can provide income through capital appreciation. The capital gains made from selling these properties are either reinvested in new properties or given to investors as dividends.
3. Interest Income
In India, real estate investment trusts (REITs) may also make money by lending money to tenants or outside developers, or by earning interest on their cash reserves. Usually, dividends are given to investors from this income.
4. Management Fees
In India, management fees levied against the special purpose vehicle (SPV) that owns the underlying assets are another source of revenue for REITs. The expenses of leasing, maintenance, and property management are all covered by these fees.
5. Development and Redevelopment
To raise the value of their properties, REITs in India occasionally take on development or redevelopment projects. In addition to the appreciation of the value of the underlying assets, this can also result in income from the sale or lease of newly constructed or renovated properties.
Important Reasons to Invest in Real Estate Investment Trusts India:
The growing popularity of Real Estate Investment Trusts (REITs) in India can be attributed to their distinct advantages and alluring investment prospects. The following five factors suggest that investors think about include REITs in their portfolios:
1. Inflation Hedge:
Due to their ability to modify lease rates and rents to account for inflation, REITs can offer investors a hedge against rising prices. This may contribute to keeping the income from the investments’ buying power stable. For instance, the rent and lease rates of the REIT’s assets may rise in response to an increase in inflation, increasing investors’ revenue.
2. Low Correlation to Other Assets:
It’s possible that REITs and other asset types, including equities and bonds, have no association. This implies that REITs may be doing well and vice versa when stock and bond values are declining. By doing this, investors may be able to diversify their holdings and maybe lower the risk of their entire portfolio. For instance, the MSCI US REIT Index plummeted by only 22% during the 2008 financial crisis, but the S&P 500 index plunged by about 38%.
3. Tax Benefits:
Investors may receive tax advantages from REITs. Reinvesting dividends allows investors to postpone capital gains taxes, and REIT distributions are generally taxed at a lower rate than ordinary income. Furthermore, investors may benefit from REITs by delaying paying taxes on the sale of valued real estate. Investors can postpone paying capital gains taxes on appreciated property by selling it and using the proceeds to purchase real estate investment trusts (REITs).
4. Potential for Growth:
Growth potential is provided by REIT funds because they can develop and buy new buildings. For investors, this may result in higher dividends, capital gains, and rental income. A REIT that specialises in the development of medical office buildings, for instance, might buy additional properties in expanding medical markets, raising the portfolio’s value and possibly raising dividend payments.
5. Exposure to Specific Real Estate Sectors:
Exposure to particular real estate sectors, such as healthcare, residential, and industrial properties, can be obtained through REITs. This enables investors to profit from particular trends in these industries. For instance, if an investor thinks the healthcare sector will expand in the future, they can put money into a REIT with a healthcare concentration to have exposure to that market.
What Is The Number of Listed Real Estate Investment Trusts in India?
Owing to its potential for long-term growth and consistent income, REIT firms are a well-liked investment choice in India. There are five REITs listed in India as of April 2023; Embassy Office Parks REIT was the most recent to be added in 2019.
The quality of the assets, the management team’s performance history, and the dividend yield are all crucial considerations when determining which REITs are the greatest investments. Brookfield India Real Estate Trust, Embassy REIT, and Mindspace Business Parks REIT are a few of the top REITs in India. Prior to making any decisions, as with any investment, it’s crucial to conduct due diligence and speak with a financial expert.
How Do I Make Investments In Indian Real Estate Investment Trusts?
Purchasing REIT funds in India is a really easy and uncomplicated procedure. The following is a step-by-step instruction for Indian REIT investors:
Choose a Broker: Selecting a brokerage who sells REITs is the first step. In India, the majority of the main stockbrokers provide REIT trading. To store your REITs, you must open a Demat account with the stockbroker of your choice.
Choose the REIT: After completing the aforementioned processes, you are able to select which REIT to invest in. India currently has two REITs listed: Mindspace Business Parks REIT and Embassy Office Parks REIT.
Place the Order: Once the REIT has been selected, you can use the trading platform of your stockbroker to place an order to purchase the REIT’s units on the stock exchange. In India, REITs require a minimum investment of between Rs. 10,000 and Rs. 15,000.
See our post, How to Invest in REITs in India: An Easy Guide, for further information.
Conclusion
To invest in real estate without the hassles of physical property ownership, REIT funds provide an appealing alternative. They provide tax advantages, competent management, diversity, a steady income stream, and liquidity. REITs can give investors a method to profit from the fast expansion of the Indian real estate sector by generating steady income from income-producing properties. Retail investors now have more access to real estate investing thanks to the establishment of REIT companies in India, which has given them a chance to contribute to the sector’s expansion.
For more information regarding Real Estate Investment Trust India, visit us at www.boardwalkindia.com