Real Estate Investment Trust (REIT) in India

REITs are a type of real estate investment trust that own or finance income-producing real estate. Learn about REITs in India and how to invest

Real Estate Investment Trusts (REITs) are companies that own, operate, and manage income-generating real estate assets, such as commercial and residential properties, hotels, and shopping centers. REITs are required to distribute at least 90% of their taxable income to shareholders in the form of dividends, which makes them a popular investment option for people looking for steady income streams.

What are REITs?

REITs are traded on stock exchanges, just like stocks, and investors can buy and sell REIT shares through a brokerage account. REITs offer investors the opportunity to own a diversified portfolio of real estate assets without having to directly buy and manage the properties themselves.

Real Estate Investment Trust - REIT
Real Estate Investment Trust – REIT

There are several types of REITs, including equity REITs, which own and operate income-generating properties, and mortgage REITs, which lend money to real estate developers and investors. REITs are required to follow certain regulatory and reporting requirements, which can provide investors with additional transparency and protection.

Eligibility of REITs in India

In India, a company can qualify as a Real Estate Investment Trust (REIT) if it meets the following criteria:

  1. The company must be registered as a trust under the Indian Trusts Act.
  2. The company must be set up for the purpose of investing in real estate assets, including commercial and residential properties, hotels, and shopping centers.
  3. At least 75% of the company’s assets must be invested in completed and revenue-generating properties.
  4. At least 90% of the company’s distributable income must be distributed to unit holders (investors) on a quarterly basis.
  5. The company must have a minimum of INR 500 crore (approximately $68 million) of assets under management and a minimum of 1,000 unit holders.
  6. The company must be listed on a recognized stock exchange in India and comply with the listing and disclosure requirements of the exchange.

If a company meets these criteria, it can qualify as a REIT in India and enjoy the benefits of REIT status, such as the ability to pass through income to unit holders and the potential for tax benefits. However, REITs in India are subject to certain regulatory and reporting requirements, which can provide investors with additional transparency and protection.

How do REITs work?

Here’s how REITs work in India:

  1. A REIT in India raises capital by selling units (similar to shares of stock) to investors through an initial public offering (IPO) or through secondary offerings on a recognized stock exchange in India.
  2. The REIT uses the capital it has raised to acquire real estate assets, such as commercial properties, apartments, or hotels.
  3. The REIT generates income from the properties it owns through rent or lease payments, mortgage interest, and property sales.
  4. The REIT is required to distribute at least 90% of its distributable income to unit holders on a quarterly basis.
  5. Investors can buy and sell REIT units through a brokerage account, just like stocks.

REITs in India offer investors the opportunity to own a diversified portfolio of real estate assets without having to directly buy and manage the properties themselves. REITs in India are subject to regulatory and reporting requirements, which can provide investors with additional transparency and protection.

Types of Real Estate Investment Trust (REIT) in India

In India, there are two main types of Real Estate Investment Trusts (REITs):

  1. Equity REITs: Equity REITs own and operate income-generating real estate assets, such as commercial and residential properties, hotels, and shopping centers. Equity REITs generate income from rent or lease payments, mortgage interest, and property sales.
  2. Mortgage REITs: Mortgage REITs lend money to real estate developers and investors for the purpose of financing real estate projects. Mortgage REITs generate income from the interest and principal payments on the loans they have issued.
  3. Hybrid REITs: These have both owned properties and mortgage-based properties and earn regular income through rent and interest. It allows investors to diversify and earn through both sources.
  4. Private REITs: These have a limited number of investors and work as private placements. They are not registered with SEBI and are also not listed on any stock exchange.
  5. Publicly Traded REITs: It is listed on the stock exchange (NSE) and is also registered with SEBI. Investors can buy and sell shares of it through a stock exchange. They are more liquid but are subject to market volatility.
  6. Public but not listed REITs: This type of real estate investment trust is registered with SEBI but is not listed on the stock exchange. Hence, they are less liquid than publicly-traded but considerably more stable as the volatility is low.

Both types of REITs in India are required to distribute at least 90% of their distributable income to unit holders (investors) on a quarterly basis. REITs in India are subject to regulatory and reporting requirements, which can provide investors with additional transparency and protection.

Advantages of Investing in REITs in India

There are several advantages of investing in Real Estate Investment Trusts (REITs) in India:

  1. Diversification: REITs offer investors the opportunity to own a diversified portfolio of real estate assets without having to directly buy and manage the properties themselves. This can help investors to spread risk and potentially reduce volatility in their investment portfolio.
  2. Professional management: REITs are managed by professional teams who have expertise in real estate investment and management. This can provide investors with the benefits of professional management without the time and effort required to manage real estate assets directly.
  3. Steady income: REITs are required to distribute at least 90% of their distributable income to unit holders (investors) on a quarterly basis. This can provide investors with a steady stream of income, which can be attractive for those looking for a reliable source of income.
  4. Liquidity: REITs are traded on recognized stock exchanges in India, which means that investors can buy and sell units easily and quickly. This can provide investors with greater liquidity compared to directly owning real estate assets.
  5. Potential tax benefits: REITs in India may be eligible for certain tax benefits, such as a lower tax rate on dividends and capital gains, which can make them an attractive investment option for some investors.
  6. Regulatory oversight: REITs in India are subject to regulatory and reporting requirements, which can provide investors with additional transparency and protection.

Disadvantages of Investing in REITs in India

There are also some potential disadvantages of investing in Real Estate Investment Trusts (REITs) in India:

  1. Risk of loss: As with any investment, there is a risk that the value of REITs could go down, potentially resulting in a loss for investors.
  2. Dependence on the real estate market: REITs are dependent on the performance of the real estate market, which can be affected by various factors such as economic conditions, interest rates, and supply and demand. If the real estate market performs poorly, this could negatively impact the value of REITs.
  3. Fees and expenses: REITs may charge fees and expenses to cover the cost of managing the real estate assets and distributing income to unit holders. These fees and expenses can reduce the overall return on investment for investors.
  4. Lack of control: As a shareholder in a REIT, an investor has limited control over the management of the real estate assets and the distribution of income.
  5. Potential for conflicts of interest: REITs may have conflicts of interest between the interests of unit holders (investors) and the management team, which could impact the performance of the REIT.
  6. Limited investment options: REITs in India are limited to investing in real estate assets, which may not suit all investors.

Risks of investing in REITs in India

Like any investment, REITs carry some risks that investors should be aware of:

  • Market risk: REITs are subject to changes in market conditions, such as changes in real estate values, interest rates, and economic conditions.
  • Credit risk: REITs may have debt obligations that are not fully secured, which could lead to credit risk if the REIT is unable to meet its debt obligations.
  • Management risk: REITs are dependent on the performance of the management team, and the REIT’s performance could be affected by poor management decisions.
  • Legal risk: REITs are subject to legal and regulatory risks, such as changes in laws or regulations that could affect their operations or financial performance

Taxation on Real Estate Investment Trusts (REIT) in India

In India, real estate investment trusts (REITs) are subject to taxation at the trust level and at the individual shareholder level.

Taxation for REITs: At the trust level, REITs are required to pay tax on any income that is not distributed to shareholders. This includes rental income, capital gains, and other types of income. REITs are also required to pay tax on any profits that are not distributed to shareholders within six months of the end of the fiscal year.

Taxation for shareholders: At the individual shareholder level, shareholders are required to pay tax on any dividends that they receive from REITs. Dividends are taxed at the applicable tax rate for the shareholder, based on their income tax bracket. The shareholders have to pay capital gains tax (as applicable) while selling their REITs.

It is important to note that the tax treatment of REITs may be subject to change, and investors should consult with a financial professional or tax advisor for the most up-to-date information on the taxation of REITs in India.

How to Invest in Real Estate Investment Trust (REIT) in India?

Like stocks, investors may decide to buy shares in a particular REIT that is enlisted on the major stock exchanges. You can buy REITs in India in 2 ways:

  1. You can purchase REIT as a stock for example you can directly purchase Embassy Office Parks REIT stock.
  2. You can invest in REIT via mutual funds for example SBI Infrastructure Fund.

What are the REITs available to invest in India?

There are several Real Estate Investment Trusts (REITs) available for investment in India. Some examples of REITs that are listed on recognized stock exchanges in India include:

  1. Embassy Office Parks REIT: This REIT is managed by Blackstone and invests in a portfolio of office properties in India.
  2. Mindspace Business Parks REIT: This REIT is managed by K Raheja Corp and invests in a portfolio of office properties in India.
  3. Brookfield India Real Estate Trust REIT: This REIT is managed by Brookfield India real estate trust.

Embassy Office Parks REIT

Returns on REIT since inception: 6%

Dividends Yield: 3%

Embassy Office Parks REIT is a Real Estate Investment Trust (REIT) that is managed by Blackstone and invests in a portfolio of office properties in India. The REIT was launched in 2019 and is the first publicly traded REIT in India.

The REIT’s portfolio includes over 32 million square feet of office space across nine properties in major Indian cities such as Bengaluru, Pune, and Mumbai. The properties are leased to a diverse tenant base that includes global and domestic companies in sectors such as technology, financial services, and engineering.

One of the key features of Embassy Office Parks REIT is its focus on sustainability. The REIT has a commitment to reducing its carbon footprint and has implemented measures such as energy-efficient lighting and water conservation systems at its properties.

Embassy Office Parks REIT is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India, and investors can buy and sell units through a brokerage account. The REIT is required to distribute at least 90% of its distributable income to unit holders (investors) on a quarterly basis.

Embassy office parks REIT share price history
Embassy office parks REIT share price history

If you look at the above Embassy office parks REIT shares price history chart the Embassy office parks REIT has given only 6% returns since inception! The returns are low as the REIT gives regular dividends.

embassy office parks REIT dividend history
Embassy office parks REIT dividend history

Although the Embassy office parks REIT has provided consistent dividends it is too low as compared to the investment. The total dividends given by Embassy office parks REIT is Rs 18.26 since its inception. In FY 21-22, the total dividend given by Embassy office parks REIT is only Rs 9.85. That’s a dividend yield of close to 3% as per the latest share price. Data Source – Embassy office parks

Mindspace Business Parks REIT

Returns on REIT since inception: 13%

Dividends Yield: 6%

Mindspace Business Parks REIT is a Real Estate Investment Trust (REIT) that is managed by K Raheja Corp and invests in a portfolio of office properties in India. The REIT was launched in 2021 and is the third publicly traded REIT in India.

The REIT’s portfolio includes over 25 million square feet of office space across nine properties in major Indian cities such as Bengaluru, Hyderabad, and Mumbai. The properties are leased to a diverse tenant base that includes global and domestic companies in sectors such as technology, financial services, and engineering.

One of the key features of Mindspace Business Parks REIT is its focus on quality and sustainability. The REIT has implemented measures such as energy-efficient lighting and water conservation systems at its properties, and the properties have received certifications such as LEED (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method).

Mindspace Business Parks REIT is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India, and investors can buy and sell units through a brokerage account. The REIT is required to distribute at least 90% of its distributable income to unit holders (investors) on a quarterly basis.

Mindspace Business Parks REIT share price history
Mindspace Business Parks REIT share price history

The above chart shows Mindspace Business Parks REIT’s share price history. The REIT has given close to 13% returns since its inception in 2021. The returns are low because the REIT has given dividends.

Mindspace Business Parks REIT dividend history
Mindspace Business Parks REIT dividend history

As per company data, Mindspace Business Parks REIT has given Rs 18.45 dividend in FY 21-22 which translates to around a 6% dividend yield.

Brookfield India Real Estate Trust REIT

Returns on REIT since inception: 12%

Dividends Yield: 7%

Brookfield India Real Estate Trust (BIREIT) is a Real Estate Investment Trust (REIT) that is managed by Brookfield Asset Management and invests in a portfolio of commercial properties in India. The REIT was launched in 2021 and is the fourth publicly traded REIT in India.

The REIT’s portfolio includes over 10 million square feet of commercial space across six properties in major Indian cities such as Mumbai and Pune. The properties are leased to a diverse tenant base that includes global and domestic companies in sectors such as technology, financial services, and engineering.

One of the key features of BIREIT is its focus on quality and sustainability. The REIT has implemented measures such as energy-efficient lighting and water conservation systems at its properties, and the properties have received certifications such as LEED (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method).

BIREIT is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India, and investors can buy and sell units through a brokerage account. The REIT is required to distribute at least 90% of its distributable income to unit holders (investors) on a quarterly basis.

Brookfield India real estate trust REIT share price history
Brookfield India real estate trust REIT share price history

Since its inception in 2021, the Brookfield India Real Estate Trust REIT has given approximately 12% returns on the stock price. The REIT has also given consistent dividends on a quarterly basis.

Brookfield India Real Estate Trust REIT Dividend history
Brookfield India Real Estate Trust REIT Dividend history

As per the company data Brookfield India Real Estate Trust REIT has given Rs 22.10 as dividends in FY 21-22 which translates to approximately 7% dividend yield on the stock price.

What is the best REIT to invest in India?

As per the above data and looking at the recent returns, the Brookfield India Real Estate Trust REIT has performed best amongst the 3 available REITs in India.

Difference Between REITs and Real Estate Mutual Funds

Real estate investment trusts (REITs) and real estate mutual funds are both investment vehicles that allow investors to invest in real estate without directly owning property. However, there are some key differences between the two:

  1. Ownership structure: REITs are companies that own and operate real estate assets, such as office buildings, shopping centers, or apartments. They are required to distribute at least 90% of their taxable income to shareholders in the form of dividends. Real estate mutual funds, on the other hand, are investment vehicles that pool together the money of multiple investors and invest it in a diversified portfolio of real estate assets, such as stocks of REITs, real estate development companies, and mortgage-backed securities.
  2. Diversification: Real estate mutual funds offer more diversification than REITs because they invest in a wider range of real estate assets. This can make them a good choice for investors who want to reduce the risk of their real estate investments by spreading them across multiple assets. REITs, on the other hand, tend to focus on a specific type of real estate, such as commercial or residential, which can make them more vulnerable to changes in that specific market.
  3. Liquidity: REITs are traded on public stock exchanges, which makes them more liquid than real estate mutual funds. This means that it is generally easier to buy and sell REITs, and investors can access their money more quickly. Real estate mutual funds, on the other hand, are typically not as liquid because they are not traded on an exchange and may have redemption fees or restrictions on when investors can withdraw their money.
  4. Fees: Both REITs and real estate mutual funds charge fees to cover the costs of managing the investments. REITs typically charge management fees and may also charge transaction fees when shares are bought or sold. Real estate mutual funds also charge management fees and may also charge other fees, such as sales charges or redemption fees.
  5. Returns: REITs and real estate mutual funds have the potential to generate income through dividends and capital appreciation. However, the performance of these investments can vary widely depending on a variety of factors, such as the specific assets they hold, economic conditions, and market trends. It is important for investors to carefully consider the potential risks and returns of any investment before making a decision.

Consider reading – Types of Mutal funds in India

FAQs on Real Estate Investment Trust (REIT) in India

  1. How can I buy REIT in India?

    You can buy REIT as stock or Mutual funds in India.

  2. Which REIT gave the highest return in India?

    As of December 2022, the Brookfield India Real Estate Trust REIT has given the highest returns in terms of stock price plus dividends combined.

  3. Do REITs give monthly dividends in India?

    No, Most REITs give quarterly dividends in India. The dividend amount is announced as part of their quarterly results.

  4. Are REITs tax-free in India?

    No, REITs are not tax free. Investors have to pay capital gains tax and dividend income tax as per the applicable rates.

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