Real Estate Investment Trusts: What You Need to Know about (REITs)
we are Bhardwaj promoters andreal estate builders in Raipur, durg and bhiali are going to talk about real estate investment.
a satirist and author, famously said, "Buy property, they don't make it any more." Though he may have meant it as a joke, property, and by extension Real Estate, has traditionally been a favoured investment in India.
Traditionally, real estate investment for Indians has meant purchasing residential property mainly for personal use.
Commercial property, such as shops and office space, is a less widely used form of Real Estate investment. However, large ticket sizes of Rs. 1 crore or more are common in this form of Real Estate investment, especially in Metro and Tier 1 cities.
Add in the hassles of obtaining the required clearances, obtaining long-term leases from viable tenants, and ensuring prompt rent payment, and you have a recipe for disaster. You'll no longer be perplexed as to why so few people opt for this type of investment.
There is, of course, another way to get into real estate investing: buying shares in publicly traded real estate firms. However, these investments are subject to market risk, and even though real estate is the underlying asset, they are more properly classified as mid or small-cap equity investments with a high degree of volatility. As a result, only a small percentage of people will include real estate in their portfolio. However, a new way to invest in commercial real estate has arisen in India in recent years: the Real Estate Investment Trust, or REIT.
REITs are publicly traded assets that give investors access to real estate without having to buy or sell it. property management on their own In this blog, we'll go over what REITs are, how they operate, how they function, how they're taxed, and whether or not you can invest in them.
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What are real estate investment trusts (REITs)?
President Eisenhower signed the REIT Act title into law as part of the Cigar Excise Tax Extension of 1960, which gave birth to the REIT concept. The REIT was founded by the US Congress to enable US investors to invest in and benefit from diversified, large-scale, professionally managed real estate portfolios in the United States.
REITs are similar to Mutual Funds in that they allow several investors to pool their money, and in both cases, the profits are distributed to the investors. A designated Manager responsibly manages the properties. However, while Mutual Funds' underlying assets are typically Equity, Debt, Gold, or a combination of these, REITs' underlying assets are mainly Real Estate Holdings or loans backed by Real Estate.
When a real estate company agrees to establish a Real Estate Investment Trust, it becomes the REIT's Sponsor and names a Trustee. The Trustee retains the Trust's Real Estate Properties in its Trusteeship, and the Sponsor no longer has full control of these assets. A REIT can directly or indirectly regulate its Real Estate Holdings by forming a Special Purpose Vehicle (SPV). In the case of real estate investment trusts (REITs), the SPV is a domestic entity that owns the REIT's Real Estate Assets on its behalf, and according to legislation, the Trust must own a 50% or greater interest in the SPV.
REITs Come in a Variety of Shapes and Sizes
The following are the various types of REITs available globally, based on the form of Real Estate holdings:
Retail REITs: These REITs must spend at least 24% of their assets in commercial retail, such as shopping malls and standalone retail stores.
Residential REITs: These are Real Estate Investment Trusts that own and manage residential apartment buildings and manufactured housing.
Healthcare REITs: As their name implies, these trusts invest in and run healthcare-related Real Estates such as hospitals, nursing homes, retirement communities, and medical centres.
REITs that invest in and manage office space are known as office REITs. The rental income earned from tenants with long-term leases is thus the primary source of income for this form of REIT.
Mortgage REITs: In these REITs, approximately 10% of investments are made in mortgages rather than actual real estate.
Now that we've covered the basics of REITs, let's look at how they work in India.
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