“REITs: Where bricks and mortar meet Wall Street, creating opportunities for both investors and communities.”

Key Takeaways:

1. REIT give investors the chance to invest in the real estate market and gain exposure to properties that generate income.
2. REITs are obligated to release a considerable percentage of their taxable revenue to shareholders as dividends, potentially providing investors with a consistent source of income.
3. While REITs have advantages, it is crucial to understand the risks associated with them. For Example market volatility, limited influence over property management decisions, and the need to consider tax ramifications.

What is Real Estate Investment Trust (REIT)?

A company that owns, manages or fund income generating real estate assets are called REIT or Real estate investment trust.

REITs allow investors to pool their funds and participate in a diverse portfolio of real estate properties. Commercial buildings, residential complexes, office spaces, retail centres, hotels, and other properties may be included.

How REIT works?

In some ways, REITs are like mutual funds. Both investment vehicles allow their investors to pool their investments together to purchase a diversified portfolio of assets.

The REIT portfolio includes commercial property, apartments, hotels, retail centres, infrastructure that may include cell towers, and energy pipelines.

Here’s how REIT works:

1. A group of investors pool in their money to form REIT.
2. This pooled money is used by REIT to purchase real estate like apartments, complexes or malls.
3. The REIT then rents out the property and collects the rent on the same.
4. These rent payments are used to pay its expenses and distribute dividends to shareholders.

Famous REITs in India

1. Brookfield India Real Estate Trust: It is India’s first and only real estate investment trust that is entirely managed by institutions. Their portfolio includes five Grade-A office parks in campus format located in strategic locations across India, valued at 164 billion as of March 31,2023. Our high-quality and well-maintained assets, together with Sponsor Group’s expertise, make us the tenants’ preferred “landlord of choice.”
   
2. Mindspace REIT: Mindspace REIT is established by Raheja corporation and was listed in the year 2020. It’s portfolio has 200+ tenants as of March 31, 2023, and no single tenant contributed more than 5.3% of Gross Contracted Rentals. Their tenants are a mix of foreign corporations and Indian corporations.
   
3. Embassy REIT: It is the first publicly traded Real Estate Investment Trust in India. Embassy REIT owns and runs a 42.8 million square foot (“msf”) portfolio of eight infrastructure-like office parks and four citycenter office buildings in Bengaluru, Mumbai, Pune, and the National Capital Region (“NCR”) of India. Their portfolio includes 33.8 million square feet of completed operating space and is home to over 214 of the world’s leading firms. The portfolio also includes strategic facilities such as two operational business hotels, four underconstruction hotels, and a 100MW solar park that provides tenants with renewable energy.

Who Qualifies as a REIT?

The following criteria must be met in order to be a REIT:

1. 90% of the income earned by a Rise of REITs must be distributed as a dividend to the investors.
2. 80% of the investment must go into properties that can generate revenue.
3. Only 10% of the total investment must be placed in under-construction real estate.
4. Asset base of the company must be at least Rs.500 crores.
5. NAVs must be revised twice every fiscal year.

Advantages of REITs

1. Liquidity: Since Rise of REITs are traded on open markets, you may quickly buy and sell them. This makes them incredibly liquid. In contrast, direct real estate investments might be challenging to liquidate rapidly.
   
2. Diversification: Your portfolio may benefit from diversification thanks to REITs. This is due to the fact that they invest in a range of real estate assets, which can aid in lowering your overall risk.
   
3. Passive Income: REITs typically pay out a large portion of their income to shareholders in the form of dividends. This can provide you with a steady stream of income, even if the value of your Rise of REITs goes up.
   
4. Tax benefits: REITs are pass-through entities, which means that they do not pay corporate taxes. This can save you money on taxes, as you will only pay taxes on the dividends that you receive.

Disadvantages of REITs

Apart from advantages REIT has some disadvantages as well:

1. Volatility: REITs can be volatile, meaning that their prices can go up and down quickly. This is because they are exposed to the same risks as the real estate market, such as changes in interest rates and economic conditions.
   
2. Fees: REITs typically have higher fees than other types of investments. This is because they have to pay for things like management and administration.
   
3. Limited control: When you invest in a REIT, you do not have direct control over the properties that the REIT owns. This means that you are at the mercy of the REIT’s management team to make decisions that are in the best interests of shareholders.

Conclusion

Real estate investment trusts (REITs) can be a good investment for investors who are looking for a way to get exposure to the real estate market without having to buy and manage properties themselves. Rise of REITs offer a number of advantages, including liquidity, diversification, passive income, and tax benefits. However, REITs also have some disadvantages, such as volatility, fees, and limited control.

Before investing in REITs, it is important to understand the risks involved. REITs are exposed to the same risks as the real estate market, such as changes in interest rates and economic conditions. REITs also typically have higher fees than other types of investments.

Additionally, when you invest in a REIT, you do not have direct control over the properties that the REIT owns. This means that you are at the mercy of the REIT’s management team to make decisions that are in the best interests of shareholders.

Therefore, it is important that you do thorough research before investments in REITs or take the opinion of a financial advisor for the same.

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