REIT – Alternative Investment
If you are a person aware of recent developments in investment options, you must have heard about Alternative Investments Funds (AIFs) and REIT as an Alternative Investments. If not, this is the most simplified write-up that you can find to understand the asset class. Alternative Investments are about unconventional asset classes unlike stocks, bonds etc. Though still in a very nascent stage, of late, REIT has emerged as one such alternative investment option in India.
A real estate investment trust (REIT) is a company that owns, operates, or finances an income generating real estate.
Modelled after mutual funds, REITs pool the capital of numerous investors and invests in real estate. This makes it possible for individual investors to earn returns from real estate investments – without having to buy, manage, or finance any properties themselves.
Where does REITs invest?
REITs investments in income generating (say rent generating) properties including apartment buildings, hotels, offices, hospitals, warehouses, data centers, cell towers, retail centers etc.
Why to choose REIT over physical properties?
REITS aims at overcoming the issues associated with investing in real estate as a physical asset by eliminating disadvantages like high investments required, lower liquidity, high transaction cost, maintenance issues, possible counterparty default risk etc.
How to invest in REITs?
REITs are publicly traded like stocks and thus are highly liquid. As an investor you can invest in REITs through stock market the way you buy and sell other stocks. The REITs that operate in India at present (Jan 2024) (in alphabetical order) are Brookfield, Embassy, Mindspace & Nexus, and all of them are listed in stock exchanges. You can go through the factsheets and investor presentations available on their respective websites to have an idea of their performances.
What to expect as an investor in REITs?
As an investor you can expect a steady return from your investments. Currently, the average return is 7% + 1% (annualized return).
REITs offer very little in the way of capital appreciation. This is because it is mandatory for an REIT to distribute 90% of its income to the investors. (Income includes cash inflows through rents or as sale proceeds through sale of asset). As REIT distributes most of the income and cannot reinvested, there is not much opportunity for capital growth.
Distribution is mostly through dividends. Generally, they do it every quarter.
Disclaimer: The above article is not an investment advice but purely intended for knowledge sharing.
