REIT a boom or curse to the real estate industry !

What Is a Real Estate Investment Trust (REIT)?

A real estate investment trust (REIT) is a business that owns, manages, or finances income-producing real estate.REITs, which are similar to mutual funds, pool the capital of multiple investors. Individual investors can now earn dividends from real estate investments without having to buy, manage, or finance any properties themselves.

How REITs Work

 The provision allows investors to purchase shares in commercial real estate portfolios, which were previously only available to wealthy individuals and large financial intermediaries.

Apartment complexes, data centres, healthcare facilities, hotels, infrastructure (fibre cables, cell towers, and energy pipelines), office buildings, retail centres, self-storage, timberland, and warehouses are examples of properties in a REIT portfolio.

REITs, in general, specialise in a specific real estate sector. Diversified and specialty REITs, on the other hand, may hold a variety of properties in their portfolios, such as a REIT that owns both office and retail properties.

Many REITs are publicly traded on major stock exchanges, and investors can buy and sell them like stocks at any time during the trading day. 2 These REITs are typically traded in large volumes and are considered very liquid instruments

What Qualifies as a REIT?

Most REITs have a simple business model: the REIT leases space and collects rent on the properties, then distributes the income to shareholders as dividends. Mortgage REITs do not own real estate, but rather finance it. The interest on their investments generates income for these REITs.

A company must follow certain provisions of the Internal Revenue Code in order to qualify as a REIT (IRC). These requirements include the long-term ownership of income-generating real estate and the distribution of income to shareholders. 3 To qualify as a REIT, a company must meet the following requirements:

• Invest at least 80% of total assets in real estate, cash, Treasuries etc 

• Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales

• Pay a minimum of 90% of taxable income in the form of shareholder dividends each year

• Be an entity that's taxable as a corporation

• Be managed by a board of directors or trustees

• Have at least 100 shareholders after its first year of existence 

• Have no more than 50% of its shares held by five or fewer individual

Why invest in REITs?

REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. These are the characteristics of REIT-based real estate investment.

Pros

• Liquidity

• Diversification

• Transparency

• Stable cash flow through dividends

• Attractive risk-adjusted returns

Cons

• Low growth

• Dividends are taxed as regular income

• Subject to market risk

• Potential for high management and transaction fees

REIT in India which are traded at stock exchange. 

• Emabassy REIT (SINCE 2017)

• Brookfield REIT (SINCE 2019) 

• Mindspace REIT (SINCE 2020)

Conclusion :- 

As been an indian have seen lots of middle people who thinks that the real estate is been one of the evergreen investment but the main problem is that it requires a lum sum amount to invest and which sometimes dishearten the middle class. This could be one of the best schme with low risk and average returns with steady income in from of dividend.