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Real Estate Investment Trusts in India (2024)

Real Estate Investment Trusts in India

In the Indian real estate market, Real Estate Investment Trusts (REITs) have become a major player, offering investors a special way to take part in the expansion of the real estate industry. In contrast to conventional real estate investments, real estate investment trusts (REITs) provide a more accessible and liquid means of gaining market exposure. We will examine the main features of Real Estate Investment Trusts in India in this post, including their composition, advantages, drawbacks, and general effects on the real estate market.

What are Real Estate Investment Trusts in India?

Retail investors can purchase a proportionate share of an income-producing real estate asset through a Real Estate Investment Trusts in India (REIT). In the past, investors in India have made real estate investments by buying a home or plot of land through brokers and developers. To earn a profit on these kinds of investments, investors had to rely on the property’s long-term increase in market value. But only during an upswing in the real estate market was this feasible. 

Additionally, developers had to find funding for their projects through loans from PE firms, banks, and other lenders, which typically came with high-interest rates. The Securities and Exchange Board of India (SEBI) published draft guidelines in 2008 that permitted investors to add Real Estate Investment Trusts (REITs) to their portfolios. The idea was to facilitate foreign investors’ entry into the Indian real estate market and facilitate local developers’ access to funding. 

Challenges in Investing in Real Estate Investment Trusts in India

  • Market Volatility: REIT prices are prone to fluctuations in the market, just like those of other traded securities.
  • Interest Rate Fluctuations: Interest rate fluctuations can affect REITs’ cost of borrowing, which can affect their profitability.
  • Economic Factors: The demand for and income from rental properties can be impacted by various economic factors, such as GDP growth and employment rates.
  • Regulatory and Legal Risks: Modifications to zoning laws, taxes, or real estate regulations may have a big effect on REITs.
  • Operational Risks: Inadequate property selection or management may lead to returns that are less than anticipated.

What are the Types of Real Estate Investment Trusts in India?

  • Equity REITs: The principal investments made by these Real Estate Investment Trusts in India are in hotels, offices, apartment buildings, and industrial estates. They purchase, oversee, assemble, and market real estate. Dividends are paid to investors from the income earned. The majority of income is produced by selling and renting out properties. 
  • Mortgage REITs: These REITs provide loans to real estate investors, and a few of them might even purchase pre-existing mortgages. Another name for them is mREITs. These get their money from the interest that mortgage loans generate. They function somewhat similarly to debt mutual funds, but REITs typically have a higher risk component.
  • Retail REITs: Supermarkets, hypermarkets, grocery stores, shopping centers, and other retail establishments are investments made by retail REITs. These retail locations are not, however, managed by retail REITs. Their primary goal is to lease the space to different retailers. In this instance, returns are contingent upon the retail industry’s performance. 
  • Residential REITs: Apartment complexes, gated communities, and other similar housing establishments are purchased and managed by residential REITs. These REITs show positive growth whenever India’s demand for residential real estate increases.
  • Healthcare REITs: Real estate for hospitals, clinics, and other medical facilities is purchased by healthcare REITs. These REITs offer investors a solid investment opportunity because the need for healthcare services has increased over the past few years.

How to Invest Real Estate Investment Trusts in India?

  • Investing through stock exchanges: REITs are listed and traded on stock exchanges, just like ETFs. Therefore, as long as an investor has a Demat Account, purchasing REIT units is simple. Depending on the level of demand for REIT units on the stock exchanges, their price may fluctuate. The REIT’s performance affects prices as well. Currently, Brookfield India Real Estate Trust, Mindspace Business Park REIT, and Embassy Office Parks REIT are the three options available for REITs in India.
  • Investing through mutual funds: There is extremely little actual exposure to real estate in India due to the small number of domestic mutual funds that invest in REITs. Mutual fund investments can also be made in REITs. Since Kotak International REIT Fund of Fund primarily invests in International REITs, investors in India seeking exposure to international real estate can consider investing in this fund. 
  • Investing through IPOs: When REIT IPOs are announced, investors should keep an eye out for them and consider investing. This necessitates in-depth investigation and comprehension of every risk factor associated with REITs. Investors will have to wait for the next initial public offering (IPO) to be released because the Indian REIT market is still developing and there aren’t many REIT options available. 

FAQ of Real Estate Investment Trusts in India

Q1. Can a REIT cause financial loss?

Investors receive dividend payments from real estate investment trusts (REITs) based on their earnings. The risk of value loss is present for publicly traded REITs if interest rates increase. Additionally, non-traded or non-listed REITs carry a risk of loss that can be challenging to investigate.

Q2. Can you get rich with Real Estate Investment Trusts in India?

Investing in REITs has advantages and disadvantages just like any other type of investment. A thorough examination of the available REIT options is necessary for investors to make an informed investment decision. Negative returns on investments in real estate investment trusts (REITs) are not unheard of, as they are also contingent on a variety of market conditions.

Q3. How Can I Invest Real Estate Investment Trusts in India?

Investors can buy REIT units through a Demat account, and the investments are listed and traded on stock exchanges. IPOs are another option for investors looking to take full advantage of new REIT launches.

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