Real Estate Investment Trusts

  • 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.

REIT origins

  • 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.
Related Posts
3rd ಮಾರ್ಚ್ 2018 ಕನ್ನಡ ಪ್ರಚಲಿತ ವಿದ್ಯಮಾನ
ನೌಕಾ ಪಡೆ ಸಮರಾಭ್ಯಾಸ ಮುಕ್ತಾಯ ಅರಬ್ಬಿ ಸಮುದ್ರದಲ್ಲಿ ಭಾರತೀಯ ನೌಕಾಪಡೆ ಮೂರು ವಾರಗಳ ಕಾಲ ಕೈಗೊಂಡ ಸಮರಾಭ್ಯಾಸ ಕೊನೆಗೊಂಡಿದೆ. ದೇಶದ ಪಶ್ಚಿಮ ಸಮುದ್ರದಲ್ಲಿರುವ ಪ್ರತಿಕೂಲ ಸನ್ನಿವೇಶಗಳನ್ನು ಎದುರಿಸುವ ಕುರಿತು ವ್ಯೂಹ ರಚನೆ ಮತ್ತು ಯುದ್ಧದ ಸಂದರ್ಭದಲ್ಲಿ ಕೈಗೊಳ್ಳಬೇಕಾದ ಕಾರ್ಯಾಚರಣೆ ಯೋಜನೆಗಳ ಬಗ್ಗೆ ನೌಕಾ ಪಡೆ ...
READ MORE
Download March 2018 Current affairs Magazine- English and Kannada
Dear Aspirants, We have released March 2018 Current Affairs magazine, both in English and Kannada. You can download from the below link. To download English March 2018 Mahithi Monthly- click here  ಮಾರ್ಚ್ 2018 ...
READ MORE
Special offer
SPECIAL ONE TIME INAUGURAL OFFER TO NammaKPSC USERS GET Rs 1000 OFF ON ALL COURSES AT BANGALORE SCHOOL OF CIVIL SERVICES. ONE STOP FOR ALL YOUR EXAM NEEDS.  TO AVAIL THE OFFER: ...
READ MORE
  Details of our Programme:    1. GS prelims: 4 months class programme by subject experts and previous toppers.  2. Anthropology Optional class  3. Ethics Module: Includes printed material and class test  4. Online Mains test ...
READ MORE
NASA has started a new programme for detecting and tracking near-Earth objects (NEOs) — comets and asteroids that pass by the Earth’s orbit — to ward off any potential impact ...
READ MORE
New scheme to tackle black money menace- Income declaration scheme
What is the scheme - Income declaration scheme How - Who is eligible - Who is not eligible Issue What is the scheme - Income declaration scheme A limited-period Compliance Window to declare undisclosed income or ...
READ MORE
Karnataka Current Affairs – KAS / KPSC Exams – 11th May 2017
2,500 ornamental fish traded globally Globally, more than 2,500 species of ornamental fish are traded, but only 30-35 species of freshwater fish dominate the market. More than 90 % of freshwater fish ...
READ MORE
After a dismal 2015 of mass refugee flows, war and catastrophe, leading U.N. agencies and their partners announced that they are seeking over $20 billion in funding next year — ...
READ MORE
ISRO Eyes World Record With Launch Of 83 Satellites On a Single Rocket
  Indian space agency ISRO is aiming for a world record by putting into orbit 83 satellites two Indian and 81 foreign on a single rocket in early 2017. The company’s order ...
READ MORE
Homeless rural residents of Karnataka will now get additional funds to build their houses In a first for the country, the State government has decided to dovetail funds meant for subsidised ...
READ MORE
3rd ಮಾರ್ಚ್ 2018 ಕನ್ನಡ ಪ್ರಚಲಿತ ವಿದ್ಯಮಾನ
Download March 2018 Current affairs Magazine- English and
Special offer
KPSC Mains 2017 Programme
New NASA programme to protect Earth from asteroids,
New scheme to tackle black money menace- Income
Karnataka Current Affairs – KAS / KPSC Exams
UN agencies appeal for humanitarian funding
ISRO Eyes World Record With Launch Of 83
Rural poor in state get MNREGA support to