REIT (Real Estate Investment Trust)

REIT (Real Estate Investment Trust)

Context: SEBI recently announced that the minimum investment amount in a REIT be brought down to ₹10,000-15,000, with the revised trading lot at one unit; the earlier investment amount was ₹50,000,

Concept:

• REITs are investment vehicles that pool investor money like mutual funds and use it to buy a portfolio of real estate assets.
• They manage these assets to generate a regular income and capital appreciation. In order to ensure that the REIT is able to generate income, the portfolio of a REIT should be invested in completed and rent-generating properties.
• REITs can invest in all kinds of income-generating properties — residences, offices, hotels, malls, warehouses et al, in India the listed REITs are focussed mainly on office space.
• The first listing of REIT in the country (Embassy REIT), the listing and trading of REITs on the exchanges allow investors to buy or sell them at any time.
• The structure of a REIT is similar to a mutual fund.
• REITs focus on paying out regular income from rent earned on properties.

It has three tier structure

• a sponsor, who is responsible for promoting the REIT with his own capital;
• a fund management company which is responsible for selecting and operating the properties;
• Trustee, who ensures that the money is managed in the interest of unit-holders.

As per SEBI’s guidelines,

• REITs need to mandatorily distribute 90 per cent of their income to unit-holders. The distribution could be in the form of dividend or interest income or both.
• REITs offer a chance to buy into diversified property portfolio with a small outlay.