How REIT impacts Real Estate?

The real estate investment trust popularly known as the ‘REIT‘ is essentially a company associated with income-generating properties by either owning them, financing them, or operating them.

The start of REITs was a significant launch in India’s Realty Market, and with time, it is progressing more towards professionalism, transparency, and accuracy. Generally, the law states that over 90% of the profits generated by these REITs should be rightfully distributed in the form of dividends to its shareholders.

What Do Companies Need To Qualify As A REIT?

Here are specific Internal Revenue Code or IRC provisions that give the terms on which a company is called a real estate investment trust.

  • To qualify the term ‘REIT’ companies must abide by the following conditions:
  • Over 90% of generated income is to be distributed among rightful investors as dividends.
  • 80% share of investment must be made in those properties that can potentially generate revenues.
  • 10% of the overall investment should be given to real estate under construction.
  • A company should possess an asset base of the amount INR 500 crores.
  • Update the NAVs twice in every financial year.
The Impact Of REIT On Real Estate!

The Blackstone Embassy Group listed the first REIT of India on the 1st of April 2019 which is remembered as the ‘red letter’ day. Since this day, the face of the commercial real estate sector has seen a dynamic shift. This launch is as good as a blessing to the realty sector as it significantly facilitates growth avenues.

These REITs act as a medium for small and mid-range investors to invest in Grade A commercial assets. Returns of such investments on an annual basis range from a minimum of 7-8% have the potential to spike up to 12-13% according to the status of underlying assets.

Additionally, investing in these commercial aspects welcomes substantial rental income for an investor. It is known that commercial properties draw in higher rental returns as compared to other residential properties. Several countries such as Singapore, Thailand, Malaysia, Japan, and so on in the Asian perimeter have rejoiced the REITs’ benefits.

Due to an increase in the value of units associated with rental income, the overall capital appreciation has been boosted. These boons and mass interest have also led to outstanding professionalism and systematic workflow in the investment sector.

Liquidity crises have dropped down in the commercial real estate sector due to this reformation.

Lastly, with a spiking demand, general interest in the sector and various NRI-based investments have also increased since the commencement of the REIT!

Highlighting Pros Of Investing In REITs
  • A Real estate investment trust is not too capital intensive like most other property direct investments.
  • Investing in real estate has become more convenient and more comfortable with the modes of REITs.
  • REITs possess a shallow liquidity risk in comparison to direct investments in real estate.
  • The SEBI regulates and monitors REITs. As a result, fraud cases and chances of malicious activities are relatively rare in REITs.
  • REITs openly share their capital portfolio in a frequency that is annual as well as semi-annual. So, transparency is at its best!
  • They offer a high dividend as up to 90% of income is paid to the REIT investors.
  • Just like investing in direct equity, investing in REITs is done quickly through your DMAT account.

REITs have had a new launch in India and in a concise period they have progressed in the commercial real estate market. Since it is in its early stages for now, the system might face a few challenges. But with time and proceedings, new reformations and updates are being made in the investing system.

If the Real estate investment trusts advance enough for individual retail investors, they will be able to reform the entire property investments system for good. This may even allow retail investors to gain convenient access to any high-value properties. This boon was traditionally only enjoyed by investors belonging to esteemed and large institutions. Progress of REITs will indeed have a direct and significant positive impact on the Indian real estate sector!

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.


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