How Does Investing In REIT Compare To Physical Real-Estate
A real estate investment trust (REIT) is a company that owns, operates, or finances a pool of real estate assets that is held like a mutual fund. Similar to how a mutual fund collects money from investors and invests it in the stock market, a REIT also draws money from private and institutional investors and channels these funds to create more real estate assets. A REIT is currently only allowed to invest in commercial real estate in India. With the government focused on creating physical infrastructure like highways, bridges, and buildings, experts say it is a good time to invest in REITs.
How is REIT created?
There are a few requirements a company must meet in order to qualify as a REIT. Some of them are: It must have an asset base of at least Rs 500 crore and must invest 80% of investors’ money in income generating real estate. The company must distribute 90% of its earnings to investors as dividends. It can represent 10% of the total investment in properties under construction.
The main benefit of a REIT is that it allows retail investors to invest their money in commercial real estate, which has traditionally attracted large-walled investors. Residential real estate investments have produced fewer returns for investors than commercial investments over the past decade. Because REITs pool the resources of many investors and different groups, they are considered a relatively safer investment option than physical real estate.
With REIT, you don’t have to scour the market to find the right property to invest your money in and just invest in the company that will channel your money into real estate funds for you.
However, experts say the pandemic may have had a negative impact on REITs, which are a relatively new concept in India. REITs can only invest in commercial real estate, including office space that can generate regular income, and most companies have allowed their employees to work from home due to the pandemic. This has challenged the demand for office space and the future of REITs.