What are Real Estate Investment Trusts (REITs)?

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About Real Estate Investment Trusts (REITs):

REITs are companies that own or finance income-producing real estate across a range of property sectors.
It allows investors to pool their funds and invest in various real estate projects.
Essentially, it functions like a mutual fund for real estate investments.
These trusts own and oversee a portfolio of income-generating properties, such as office buildings, hotels, shopping malls, etc.
Unlike other real estate companies, a REIT does not develop real estate properties to resell them. Instead, a REIT buys and develops properties primarily to operate them as part of its own investment portfolio.
When investors invest in a REIT, they become fractional owners of the property equivalent to the amount they’ve invested, giving them access to the benefits of owning real estate assets in small ticket sizes.
Most REITs are publicly traded like stocks, which makes them highly liquid, unlike traditional real estate investments.
REITs in India:
- In India, REITs were introduced in 2014 and are regulated by the Securities and Exchange Board of India (SEBI).
- For a company to qualify as a REIT, the following criteria must be satisfied:
- 90% of the income must be distributed to the investors in the form of dividends.
- 80% of the investment must be made in properties that are capable of generating revenues.
- Only 10% of the total investment must be made in real estate under-construction properties.
- The company must have an asset base of at least Rs 500 crores.
- REITs cannot invest in agriculture land, vacant land.

Q1: What is a mutual fund?

A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities (according to the fund’s stated strategy).It allows individual investors to gain exposure to a professionally-managed portfolio and potentially benefit from economies of scale, while spreading risk across multiple investments.

Source: REIT Association launches DBIs to provide detailed information to investors