What are Real Estate Investment Trusts (REITs)?

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

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