What
are REITs?
"REITs is an investment trust that owns and manages a
pool of commercial properties and mortgages and other
real estate assets; shares can be bought and sold in the stock
market."
REITs - Real Estate Investment
Trusts - have been in the
news lately ever since SEBI issued guidelines for
REITs to
come in to existence within the regulatory framework.
Investors, both
wholesale and retail, now will have another
avenue to invest in the real estate
sector through a regulated
fund route.REITs will help investors channelize their investments into India
Investopedia defines REITs as a
security that sells like a
stock on the major exchanges and invests in real
estate
directly, either through properties or mortgages. REITs
typically offer
investors high yields, as well as a highly
liquid method of investing in real
estate."
Types of REITS
There are internationally three
types of REITS. In India
however, a beginning is made with the third type, the
hybrid one.
Equity REITs: Equity REITs invest in and own properties (thus
responsible for the equity or value of their real estate assets). Their
revenues come principally from their properties' rents.
Mortgage REITs: Mortgage REITs deal in investment and ownership of
property mortgages. These REITs loan money for mortgages to owners of real
estate, or purchase existing mortgages or mortgage-backed securities. Their
revenues are generated primarily by the interest that they earn on the mortgage
loans.
Hybrid REITs: Hybrid REITs combine the investment strategies of
equity REITs and mortgage REITs by investing in both properties and mortgages.
REITS in India
Individuals can invest in REITs by
purchasing their shares
directly on an open exchange. An additional benefit to
investing in REITs is the fact that many are accompanied
by dividend
reinvestment plans (DRIPs). These are
equivalent to Growth plans in Equity and
other mutual
Funds. Besides, REITs invest in shopping malls, office
buildings,
apartments, warehouses and hotels. There are
specific segment or location wise
investments too. Some
REITs will invest specifically in one area of real estate
-
shopping malls, for example - or in one specific region, state
or country.
Investing in REITs is a liquid, dividend-paying
means of participating in the
real estate market.
Benefits and risks of REITs?
REITs
will offer investors another option or avenue to include real estate in their
investment portfolio. Further, well managed REITs may offer higher dividend
yields which may be higher compared to other investments. As we know, rental
yields on long term commercial office space and retail space tend to be much
higher than rental yields on residential property, higher than dividend yields
on stocks and are often in the range of returns that bank deposits offer. An
investor in a REIT can thus look forward to reasonably high annual dividends as
well as some appreciation in the long term from appreciation in the capital
value of the properties owned by the REIT.
There are several
risks in non-traded REITs including
liquidity and non-transparency - which is
perhaps why
SEBI has not permitted non-traded REITs to be introduced
in India
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| Neeta Shah |
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