If you are looking for a way to invest in real estate without buying or managing any property yourself, you might have heard of the term REIT. But what does it mean and how does it work? In this article, we will explain the full form of REIT, its types, advantages, and limitations, and how you can invest in REITs in India.

 

What is the Full Form of REIT?

 

REIT stands for Real Estate Investment Trust. It is a company that owns, operates, or finances income-producing real estate assets. REITs are modeled after mutual funds, which pool the capital of many investors and invest it in a diversified portfolio of securities. Similarly, REITs allow investors to buy shares in a portfolio of real estate properties and earn dividends from the rental income or interest income generated by those properties.

 

REITs were established in the United States in 1960 as a way to make real estate investment accessible to the general public. Since then, REITs have spread to many countries around the world, including India, which introduced its first REIT in 2019.

 

Full Form of REIT : Types of REITs

 

There are different types of REITs based on the kind of real estate assets they own or finance, and the way they are traded in the market. Here are the main types of REITs:

 

• Equity REITs: These are the most common type of REITs. They own and operate income-generating properties, such as office buildings, shopping malls, hotels, apartments, etc. They earn revenue from the rents collected from the tenants of these properties. Equity REITs are also known as operating REITs.
• Mortgage REITs: These are also called mREITs or finance REITs. They do not own any property directly, but lend money to real estate owners or developers, or buy mortgage-backed securities. They earn revenue from the interest income on their loans or securities. Mortgage REITs are more sensitive to interest rate fluctuations than equity REITs.
• Hybrid REITs: These are REITs that combine the features of both equity and mortgage REITs. They own and operate some properties, and also lend money or invest in mortgage securities. They earn revenue from both rents and interest income. Hybrid REITs offer more diversification than pure equity or mortgage REITs.
• Public REITs: These are REITs that are listed and traded on a stock exchange, like any other public company. They are subject to the regulations and disclosure requirements of the securities market. They offer high liquidity and transparency to investors, who can buy and sell their shares easily. Most REITs in India are public REITs.
• Private REITs: These are REITs that are not listed or traded on a stock exchange. They are offered to a select group of investors, usually institutional or high-net-worth individuals. They are not subject to the same regulations and disclosure requirements as public REITs. They offer more flexibility and control to the sponsors and managers of the REIT, but less liquidity and transparency to the investors.

 

Full Form of REIT : Advantages of REITs

 

REITs offer several benefits to investors who want to invest in real estate, such as:

 

• Regular income: REITs are required to distribute at least 90% of their taxable income as dividends to their shareholders. This means that investors can receive a steady stream of income from their REIT investments, which can be higher than the interest income from fixed deposits or bonds.
• Capital appreciation: REITs can also increase in value over time, as the underlying properties appreciate in value or the REIT acquires more assets. This means that investors can also benefit from the capital gains from their REIT investments, which can be higher than the returns from stocks or mutual funds.
• Diversification: REITs can help investors diversify their portfolio, as they have a low correlation with other asset classes, such as stocks, bonds, or gold. This means that REITs can reduce the overall risk and volatility of the portfolio, and enhance the risk-adjusted returns.
• Tax efficiency: REITs are exempt from corporate tax, as long as they distribute at least 90% of their income as dividends. This means that REITs do not have to pay any tax on their income, unlike other companies. This also means that investors do not have to pay any tax on the dividends received from REITs, unlike other dividends. However, investors may have to pay capital gains tax on the sale of REIT shares, depending on the holding period and the tax slab.
• Professional management: REITs are managed by a team of professionals, who have the expertise and experience in the real estate sector. They are responsible for selecting, acquiring, operating, and maintaining the properties, as well as raising funds and distributing dividends. This means that investors do not have to worry about the hassles and challenges of owning and managing real estate themselves.

 

Full Form of REIT : Limitations of REITs

 

REITs also have some drawbacks that investors should be aware of, such as: https://www.shutterstock.com/image-photo/reit-real-estate-investment-trust-symbol-2168674563

 

• Market risk: REITs are subject to the fluctuations of the real estate market, which can be affected by various factors, such as demand and supply, economic conditions, interest rates, regulations, etc. This means that REITs can lose value if the real estate market declines or faces a slowdown. REITs are also subject to the fluctuations of the stock market, which can be affected by various factors, such as investor sentiment, corporate earnings, global events, etc. This means that REITs can lose value if the stock market crashes or faces a correction.
• Liquidity risk: REITs may face liquidity issues, as they invest in illiquid assets, such as real estate properties, which can take a long time to sell or buy. This means that REITs may not be able to sell their properties quickly or at a fair price, if they need to raise cash or exit from an investment. REITs may also face liquidity issues, as they depend on the availability and cost of debt and equity financing, which can vary depending on the market conditions. This means that REITs may not be able to raise funds easily or cheaply, if they need to acquire new assets or refinance their existing debt.
• Regulatory risk: REITs are subject to the regulations and compliance requirements of the authorities, such as SEBI, RBI, etc. These regulations and requirements can change from time to time, and affect the operations and performance of REITs. For instance, REITs have to follow certain rules regarding the minimum asset size, minimum public float, minimum distribution, etc. These rules can limit the flexibility and growth potential of REITs. REITs also have to comply with the accounting and reporting standards, which can affect the valuation and transparency of REITs.

 

Full Form of REIT : How to Invest in REITs in India?

 

To invest in REITs in India, you need to have a demat account and a trading account with a broker. You can buy and sell REIT shares through the stock exchange, like any other stock. You can also invest in REITs through mutual funds or ETFs, which invest in a basket of REITs. You can choose the REIT that suits your investment objective, risk appetite, and return expectation, and monitor its performance regularly.

 

Currently, there are three REITs listed in India, namely: Full Form of REIT

 

• Embassy Office Parks REIT: This is the first and largest REIT in India, which owns and operates a portfolio of office parks and business centres across major cities, such as Bengaluru, Mumbai, Pune, etc. It has a market capitalization of over Rs. 40,000 crore and a distribution yield of over 6%.
• Mindspace Business Parks REIT: This is the second REIT in India, which owns and operates a portfolio of office parks and business centres across major cities, such as Mumbai, Hyderabad, Pune, etc. It has a market capitalization of over Rs. 20,000 crore and a distribution yield of over 7%.
• Brookfield India REIT: This is the third and latest REIT in India, which owns and operates a portfolio of office parks and business centres across major cities, such as Mumbai, Gurugram, Noida, etc. It has a market capitalization of over Rs. 10,000 crore and a distribution yield of over 8%.

 

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