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REIT is an entity which pools funds invested by various persons and invests such funds in income producing Real Estate. REITs are designed based on model of mutual funds. REITs invest the pooled funds in properties which may be rented out. So there is liquid income also along with long term capital appreciation. This regular rental income helps REIT to distribute dividends regularly.
BENEFITS OF REITs
- High dividend returns, as REIT has to distribute 90% of its annual income to its investors as dividend.
- Capital Appreciation in case of investments in REIT is moderate. It may not be as high as equity investments but the risk is very much limited in comparison to equity investments.
- Liquidity is also high, as REIT investments are tradable on stock exchange and investor may any time sell investment units held by him.
- Already developed properties are taken and held by REITs, so risks during development period or success of project is not there. These properties are in already developed areas and are usable properties, which may be rented.
- Professional Management
- Regulatory checks
TYPE OF REITs
- Equity REITs generally invest in various types of properties and earn rental income along with capital appreciation.
- Mortgage REITs provide funds against mortgage of real estate properties.
Difference in REIT and Real Estate companies:-
REITs invest in real estate to make a portfolio of properties to generate operative income and long term appreciation for their investors. While real estate companies resell properties after purchasing and developing them.
In various countries like United States of America, concept of REIT is very much developed. Their most of REITs trade on major stock exchanges. Although there are not listed and private REITs also in US.
List of some REITs in US
- Annaly Capital Management
- RREEF America REIT
- Cousins properties
- Washington Real Estate Investment Trust
- Sun Communities
- United Realty Trust Incorporated
- Colonial Properties Trust
- Vornado Realty Trust
REITs In INDIA
In November 2014, SEBI notified ‘SEBI REIT regulation 2014’ for regulating REITs in India. Being a new concept in India, a very liberal view was taken regarding formalities and regulation to setup a REIT. Still no corporates or business house has shown keenness to setup REIT. DDT (dividend distribution tax) was said to be a bid hurdle on the road to setup and operate a REIT in India. In annual budget 2016, Modi government has removed that hurdle too. Till now SEBI has not received a single application to setup a REIT, but it is expected now few listings will be there with SEBI this year.