- Real Estate Investment Trusts (REITs) are in the news, with analysts bullish about the potential in India and the Securities and Exchange Board of India looking to tweak norms – a process that will begin as early as next week including circulation of a consultation paper to amend the regulations of 2014, to encourage investments. Here is a ready-reckoner that will help in understanding what an REIT is, how it works, and the potential investment risks:
What are REITs?
- REITs are similar to mutual funds. While mutual funds provide for an opportunity to invest in equity stocks, REITs allow one to invest in income-generating real estate assets.
How does an REIT work?
- REITs raise funds from a large number of investors and directly invest that sum in income-generating real estate properties (which could be offices, residential apartments, shopping centres, hotels and warehouses).
- The trusts are listed in stock exchanges so that investors can buy units in the trust. REITs are structured as trusts. Thus, the assets of an REIT are held by an independent trustee on behalf of unit holders.
- The investment objective of REITs is to provide unit holders with dividends, usually generated from rental income and capital gains from the profitable sale of real estate assets.
- Typically, the trust distributes 90 per cent of its income among its investors by issuing dividends.
- REITs originated in the U.S. to give investors an opportunity to invest in income-generating real estate assets. After its introduction in the U.S., several countries such as Singapore, Australia and Hong Kong have implemented REITs.
Why now, in India?
- REITs, as a concept, have been on the horizon for a while now.
- India’sregulations in 2014 for the sector have not been able to attract investor interest. REITs obtained exemption from dividend distribution tax in the Budget, a step towards making them attractive for the investors.
- A report by real estate consultancy firm Cushman and Wakefield estimates that Indian commercial real estate (like office, retail assets) offers investment opportunities for REITs worth $43 billion – $54 billion (Rs, 2.88 lakh crore – Rs. 3.60 lakh crore) across top cities.
- The underlying strategy for REIT is to invest in rent-yielding assets and generate rental income for investors in the form of dividends. That explains why commercial real estate is seen as potential for REITs. The predominant strategy to invest in residential assets is via rental housing schemes. However, rental housing schemes in India are still not prevalent and hence investing in residential assets would be challenging
- The current SEBI guidelines for REITs permit investments only in rent-yielding assets.
Why invest in REITs?
- For investors who are averse to investing in physical purchase of property due to the risks involved, REIT is an alternative. Investors purchase units of REITs which are traded on the stock exchange, as against physical purchase of property. Therefore, investors can buy and sell units of REIT on the stock exchange as and when required, making investment easier to liquidate compared to physical property transaction.
- REITs units are listed on, and are subject to the vagaries of the stock exchanges, resulting in negative or lower returns than expected.
Karnataka Agri Business and Food Processing Policy 2015 is aimed at positioning Karnataka in a sustained growth path in the field of agricultural and allied sectors through global technologies and innovative ...READ MORE
Ministry aims to have a new auction policy for hydrocarbon blocks ready by the end of the current financial year. Marginal field policy In the recently announced marginal field policy, the government ...READ MORE
Life history Basaveshwara was born in Bagevadi ( of undivided Bijapur district in Karnataka) during 1131 AD. His father was Madarasa and Madalambike was his mother. They belonged to Brahmin community. As a ...READ MORE
The Karnataka Knowledge Commission (KKC) is coming out with a strategy to utilise Unmanned Aerial Systems (UAS) technology in the sectors of town planning, crop and forest survey, pollution monitoring, civic operations among ...READ MORE
DOWNLOAD AUGUST 2016 CURRENT AFFAIRS MAGAZINE CLICK HERE Best Current affairs Magazine for all civil services competitive examinations. It is the only magazine that covers National issues, international issues and Karnataka issues ...READ MORE
Accessible India, Empowered India”,is a scheme aimed at ease of access for persons with disabilities in government buildings and public transport. It is the responsibility of the signatories to the UN ...READ MORE
Hearty Congratulations to all those who have cleared Gazetted Probationary Mains exam. The final stage (Personality Test/Interview) will carry 200 Marks and team NammaKPSC is here to help you and ...READ MORE
Official Secrets Act 1923 The Official Secrets Act 1923 is India's anti espionage (Spy" and "Secret agent") act held over from British colonisation. According to this Act, helping the enemy state can ...READ MORE
India was ranked 37 out of 38 countries, with only Venezuela scoring lower, in the U.S. Chamber of Commerce-International Intellectual Property Index. The report, comes at a time when the government ...READ MORE
Karnataka Agri Business and Food Processing Policy 2015
New auction policy for natural gas
Basaveshwara – A visionary of total revolution
Study group to chart out roadmap for tapping
AUGUST MAHITHI MONTHLY CURRENT AFFAIRS MAGAZINE FOR KAS
Accessible India campaign
Official secrets act explained
India near bottom of intellectual property index
Relaxed norms for aircraft import