The popularity of REITs has been witnessed historically as their competitive market performance has yielded high returns for investors through the years. Therefore, investors get a stable and steady (and seamless) flow of investment, significantly higher than other assets like equity and bonds.
1. REITs is a special investment company that invests money obtained from investors directly in real estate, either through properties or via mortgages. This investment vehicle works just like a mutual fund.
2. Investors get the capital gains when properties are sold off and also income from rent earned from underlying properties.
3. REITs brings in transparency for the investors as it tell them what is being bought and also the property’s current value.
4. REITs is a boon especially for those who find it difficult to purchase real estate as an investment option.
5. Securities and Exchange Board of India (SEBI) has introduced draft regulations for REITs and they will be allowed to function once these regulations are passed.
What are the Types of REITs?
Mentioned below are some of the commonly available varieties of REITs in India:
- Equity REITs: These REITs primarily invest in offices, residential complexes, industrial estates, hotels etc. They buy, manage, set-up and sell real estate. The income earned is distributed to investors as dividends. Income is mostly generated through rentals and sale of properties.
- Mortgage REITs: These REITs loan out money to buyers of real estate, and some may even buy-out existing mortgages. They are also referred to as mREITs. These derive income from the interest received through mortgage loans. They work somewhat like a debt mutual fund, however, the risk component is often higher in REITs.
- Retail REITs: Retail REITs invest in the retail segment like shopping malls, grocery stores, hypermarkets, supermarkets, etc. However, retail REITs do not run these retail outlets. They only focus on renting out the space to various retail tenants. Returns in this case depend on the performance of the retail sector.
- Residential REITs: Residential REITs buy and operate apartment buildings, gated communities, and other such housing establishments. Whenever the residential property demand in India grows, these REITs reflect a positive growth.
- Healthcare REITs: Healthcare REITs invest in real estate for hospitals, medical establishments, health clinics, etc. Since the demand for healthcare services has been on a rise in the last few years, these REITs present a good investment opportunity for investors.
- Office REITs: These REITs focus on office properties and earn through rental income.