A real estate investment trust (REIT) is a trust that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. The stockholders of a REIT earns a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property. Globally, Over 30 countries now have REITs with US being the first country to introduce it in the 1960s. REITs have a proven and successful track record in several Asian countries such as Japan, Singapore, Malaysia, Thailand, Taiwan, South Korea, and Hong Kong. For many real estate markets in the world and Asia, REITs have proven to be a game-changer for the sector and have the potential to boost investor sentiment. India offers major advantages such as a wide variety of quality assets, sustained government support in easing regulations, a wide investor base, and opportunities for capital appreciation, among others.
REITs offer investors a number of benefits, including:
Diversification: Over the long term, Equity REIT returns have shown little correlation to the returns of the broader stock market.
Dividends: Stock exchange-listed REITs have provided a stable income stream to investors.
Liquidity: Stock exchange-listed REIT shares can be easily bought and sold.
Transparency: Stock exchange-listed REITs operate under the same rules as other public companies for securities regulatory and financial reporting purposes.
REITs with Indian Perspective
As of August 2014, India approved creation of real estate investment trusts in the country. Indian REITs help individual investors enjoy the benefits of owning an interest in the securitized real estate market. The government and Securities and Exchange Board of India through various notifications is in the process of making it easier to invest in real estate in India directly and indirectly through foreign direct investment, through listed real estate companies and mutual funds. In the budget of 2014, finance minister has introduced a law for setting up of REITs.
The structure of REITs is similar to that of a mutual fund, but they invest in physical real estate. The money accumulated is distributed in income-generating real estate. Of the rental income that REIT receives, at least 90 per cent is mandated to be passed on to the unit holders. India’s first REIT launched by Embassy Office Parks, a joint venture of Blackstone and realty firm Embassy, successfully raised Rs 4,750 crore through the issue.
The emergence of new office space occupiers continued demand from IT/ITeS, global in-house centres along with the BFSI space are expected to keep office space demand robust over the coming years. While the strong institutional flow of funds into real estate will continue to provide initial momentum towards REITs’ growth in the country, active participation of insurance and pension funds in future will help in long term growth of the market. In India, REITs has bright prospects and in future it will be a center of attraction for Real estate sector and investors
Mr Jay Deliwalia MR Sandeep Sabnani
Director: Kunvarji Group Vice President : Kunvarji Realty
Contact No: + 91 97129 31233 Contact No: + 91 90990 31221