Real Estate Investment Trusts (REITs) have emerged as a significant financial instrument in the global investment landscape, offering a way to invest in real estate without the need to directly buy property. In India, REITs have been gaining traction, providing investors with a viable option to diversify their portfolios. This article delves into the definition of REITs, their functioning, and the best options available in India. Modeled after mutual funds, REITs allow individuals to invest in large-scale, income-producing real estate. A REIT collects rent from its properties and distributes it as dividends to shareholders. To qualify as a REIT, a company must invest at least 75% of its total assets in real estate and derive at least 75% of its gross income from rent or mortgage interest.
Types of REITs
Even within REITs, there are multiple options and variations to invest, let’s get familiar;
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Equity REITs
Equity REITs are among the most popular types. They primarily focus on operating and managing income-generating commercial properties. The primary source of income for equity REITs is rent from these properties. These REITs invest in a wide range of real estate assets, including office buildings, shopping centres, industrial warehouses, and apartment complexes.
Check the List of Listed REITs in India
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Mortgage REITs
Mortgage REITs, also known as mREITs, have a different focus. They primarily lend money to property owners and extend mortgage facilities. Additionally, mREITs acquire mortgage-backed securities. Their income comes from the interest accrued on the money they lend to property owners.
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Private REITs
Private REITs function as private placements and cater to a selective list of investors. They offer an opportunity to invest in real estate without the need for public trading. Investors in private REITs typically pool their resources to invest in large commercial real estate projects.
REITs In India
REITs have experienced a surge in popularity in India and currently, three listed REITs allow investors to participate:
- India’s first listed REIT, Embassy Business Park REIT focuses on commercial office spaces. It includes properties with multinational tenants.
- Mindspace Business Parks REIT, this primarily invests in Grade-A office spaces across major cities in India.
- Brookfield India REIT, offers a diversified portfolio of properties, including office and retail spaces.
Read: REITs Vs Physical Real Estate
Conclusion:
REITs provide an efficient way to invest in real estate without the complexities of direct property ownership. Whether you’re interested in equity REITs, mortgage REITs, or hybrid REITs, these investment options offer income generation and potential capital appreciation. As the Indian real estate market continues to evolve, REITs are expected to play an increasingly important role in investors’ portfolios.
