Unlocking Potential Minimum Investment in REITs

REITs or Real Estate Investment Trusts are companies that own, operate, or finance income-generating real estate assets, such as office spaces, malls, hotels, warehouses, etc. REITs offer investors a way to participate in the real estate market by buying units or shares of the REIT, similar to buying shares of a company. REITs distribute most of their income to the unit holders or shareholders as dividends, and also offer capital appreciation potential.

Minimum Investment in REITs s are a popular instrument globally, but they are relatively new in India. The first REIT in India was launched in 2019, and since then, the REIT market in India has grown steadily, attracting both domestic and foreign investors. However, one of the barriers that may prevent some investors from investing in REITs is the minimum investment requirement, which varies depending on the type and listing of the REIT.

In this article, we will explore the minimum investment in REITs, the factors that determine it, and the benefits of lowering it for the investors and the REIT market.

What is the Minimum Investment in REITs?

The minimum investment in REITs is the lowest amount of money that an investor needs to invest in a REIT, either directly or indirectly. The minimum investment in REITs depends on the type and listing of the REIT, as well as the regulatory framework and the market conditions.

There are different types of REITs, based on the nature of their assets, the way they are traded, and the tax treatment they receive. For example, there are equity REITs, mortgage REITs, or hybrid REITs, and there are publicly-traded REITs, non-traded REITs, or private REITs. Each type of REIT may have a different minimum investment requirement, depending on the regulations and the demand and supply of the units or shares of the REIT.

In India, there are only four REITs listed on the stock exchanges, namely:

Embassy Office Parks REIT: This is the first and the largest REIT in India, which owns and operates a portfolio of 42.4 million sq ft of office space across seven cities in India. The REIT has a market capitalisation of Rs. 36,000 crore, and a dividend yield of 6.5%. The REIT was launched in March 2019, and has delivered a total return of 25% since its listing¹.

Mindspace Business Parks REIT: This is the second REIT in India, which owns and operates a portfolio of 29.5 million sq ft of office space across five cities in India. The REIT has a market capitalisation of Rs. 18,000 crore, and a dividend yield of 6.8%. The REIT was launched in July 2020, and has delivered a total return of 17% since its listing².

Brookfield India Real Estate Trust: This is the third REIT in India, which owns and operates a portfolio of 14 million sq ft of office space across four cities in India. The REIT has a market capitalisation of Rs. 9,000 crore, and a dividend yield of 7.5%. The REIT was launched in February 2021, and has delivered a total return of 10% since its listing³.

Nexus Select Trust: This is the fourth and the latest REIT in India, which owns and operates a portfolio of 5.4 million sq ft of retail space across four cities in India. The REIT has a market capitalisation of Rs. 3,000 crore, and a dividend yield of 8%. The REIT was launched in June 2021, and has delivered a total return of 5% since its listing⁴.

According to the SEBI (Real Estate Investment Trusts) Regulations, 2014, the minimum investment in REITs in India is determined by the following factors:

Minimum lot size: This is the minimum number of units or shares of the REIT that an investor can buy or sell in a single transaction. The minimum lot size for REITs in India was initially set at 200 units, which meant that an investor needed to invest at least Rs. 2 lakh (assuming a unit price of Rs. 1,000) to buy a REIT. However, in 2020, SEBI reduced the minimum lot size to 50 units, which lowered the minimum investment in REITs to Rs. 50,000 (assuming the same unit price).

Minimum subscription size: This is the minimum amount of money that an investor needs to invest in a REIT during its initial public offering (IPO) or follow-on public offering (FPO). The minimum subscription size for REITs in India is set at Rs. 1 lakh, which means that an investor needs to invest at least Rs. 1 lakh to subscribe to a REIT during its IPO or FPO.

Minimum trading size: This is the minimum number of units or shares of the REIT that an investor can buy or sell on the stock exchanges after the listing of the REIT. The minimum trading size for REITs in India is set at 1 unit, which means that an investor can buy or sell as little as 1 unit of a REIT on the stock exchanges after its listing.

What are the Benefits of Lowering the Minimum Investment in REITs?

Lowering the minimum investment in REITs can have several benefits for the investors and the REIT market, such as:

Increased accessibility: Lowering the minimum investment in REITs can make them more accessible and affordable for a larger number of investors, especially retail and small investors, who may not have the financial capacity or the risk appetite to invest in physical properties. This can also increase the financial inclusion and literacy of the investors, as they can participate in the real estate market and learn about its dynamics and opportunities.

Increased liquidity: Lowering the minimum investment in REITs can also increase the liquidity and the trading volume of the REITs, as more investors can buy and sell the units or shares of the REITs on the stock exchanges. This can also reduce the volatility and the price fluctuations of the REITs, and improve the price discovery and the valuation of the REITs.

Increased diversification: Lowering the minimum investment in REITs can also increase the diversification and the stability of the REITs, as more investors can invest in different types and sectors of REITs, and balance their portfolio with other asset classes. This can also reduce the concentration and the correlation risk of the REITs, and enhance their performance and returns.

Conclusion

REITs are a unique and attractive way to invest in the real estate sector, without having to buy and manage physical properties. REITs have a special structure, listing, investment, valuation, and distribution mechanism, which provide income, growth, diversification, liquidity, and transparency benefits for the investors. However, one of the barriers that may prevent some investors from investing in REITs is the minimum investment requirement, which varies depending on the type and listing of the REIT. The minimum investment in REITs in India is determined by the minimum lot size, the minimum subscription size, and the minimum trading size, which are regulated by SEBI. Lowering the minimum investment in REITs can have several benefits for the investors and the REIT market, such as increased accessibility, liquidity, and diversification. By following this guide on unlocking potential understanding the minimum investment in REITs, you can start investing in REITs and enjoy the benefits of the real estate sector.

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