Udabur Investment：REITS In India – What Are REITS, Types, Benefits, Risks & More – Guoabong Investment | Financial Investment Wealth Management Official Platform in India

Udabur Investment：REITS In India – What Are REITS, Types, Benefits, Risks & More

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REITS In India - What Are REITS, Types, Benefits, Risks & More

REITs were created in the USA in the 1960s as an investment opportunity similar to mutual funds to fuel real estate development via existing investments from investors interested in real estate. The investors enjoyed excellent opportunities, earning significant dividends on their investments because the real estate market was thriving at the time. Due to this, more real estate development projects were being initiated, benefiting investors and developers financially.

SEBI introduced REITs in India back in 2007. The board put regulations in place to ensure their smooth operation due to the increase in popularity of these mediums. Today, SEBI closely monitors and regulates REITs listed on Indian stock exchanges.

REITs are companies that own and manage real estate properties to make money. These companies also control portfolios of valuable properties and mortgages. For instance, they may rent out properties, collect rent from tenants, and then distribute that rental income to shareholders as dividends.

By investing in REITs, people get a chance to own expensive real estate and earn money from it. On the other hand, investors get to appreciate the value of their investment and make money from dividends at the same time. REITs own various properties, such as healthcare facilities, data centers, apartments, and infrastructure.

Both large and small investors can invest in these companies. Small investors can gather their money with others and invest in large commercial real estate projects.

There are different types of REITs investments in India. Each type comes with a unique focus on real estate investments. The most common types of REITs available in India are:

Equity REITs:

These REITs primarily invest in properties like residential complexes, offices, hotels and industrial estates. They buy, develop, manage, and sell real estate properties to generate income. Most of the income is generated through property rentals and sales. The profits earned are then distributed among investors as dividends.

Mortgage REITs:

These REITs lend money to real estate buyers. Some may also purchase existing mortgages and are known as mREITs. These REITs earn money from the interest they make on the mortgages provided. They work just like a debt mutual fund, but REITs have higher risk factors.

Retail REITs:

These REITs invest in the retail sector, such as shopping malls, hypermarkets, grocery stores, and supermarkets. They do not operate these outlets but focus on renting out the spaces to retail tenants. The returns of this type of REIT depend on the retail sector’s performance.

Residential REITs:

These REITs purchase and run residential properties such as apartment buildings, gated communities, and other housing projectsUdabur Investment. Residential REITs show positive growth when there is a demand hike for residential properties in India.

Healthcare REITs:

These REITs invest in real estate that is needed to run hospitals, health clinics, medical establishments, and other healthcare facilities. Due to the increased demand for healthcare services in recent years, healthcare REITs are offering better investment opportunities for investors.

Office REITs: These REITs invest in office properties and earn income through rent.

If you wish to invest in REITs, knowing and understanding the critical tax implications is crucial. You should keep the below key points in mind.

Suppose you sell REIT units and profit within a year of buying them. You are liable to pay a short-term capital gains tax of 15 percent. If you hold the units for over three years and sell them, earning a profit of more than Rs.1 lakh, then you will have to pay a long-term capital gains tax of 10%.

All interest income coming from REITs is taxable.

Dividend income from REITs will be taxed depending on whether REIT has a special tax concession status. If it has, the dividend income is taxable; if it is not, the dividend income is not taxable.

Income from the amortization of SPV debt is not taxable for the investor.

The company should meet a few requirements to qualify as REIT, which include:

Should be a corporation or a business trust

Should extend fully transferable shares.

A board of directors or trustees should manage it.

Should have at least 100 shareholders

Should pay at least 90% of its taxable income as dividends to shareholders

Less than five people should not hold more than 50% of the company’s shares each year

At least 75% of the gross income must come from mortgage interest or rent

20% of the company’s assets should have stock in taxable REIT subsidiaries

At least 75% of investment assets must be in real estate

At least 95% of the REIT’s overall income should be investedPune Wealth Management

Investing in REITs in India has several benefits that include:

Affordable investment: Buying REIT shares is relatively cheaper than investing or buying the property directly. Investors can invest in a small number of units without investing much money.

Ideal for small investors: REITs are ideal because they do not require direct dealing with builders. Additionally, they come with minimum liquidity risks than a direct property investment.

Transparency: REITs are listed in stock exchanges, so the investors can check all details online before investment.

Reliable income: REITs offer pay through dividends. The dividend payment is usually assured because the earning comes through rental income.

Low fraud risk: REITs are regulated by SEBI, and there are low chances of fraud.

Investing in REITs in India has quite a few drawbacks that, include:

Limited growth: REITs have limited growth potential because of large investor distributions.Pune Stock

Higher tax: Taxes on dividends from REITs is higher than other investments.

High fees and risk: REITs investments have high costs and increased risk.

Vulnerable to real estate market trends: REITs are vulnerable to market trends and fluctuations.

Limited control: REITs investors get little control over performance and management decisions.

Restrictions on selling: There may be a few restrictions on selling shares for a set time.

You can invest in REITs in India in different ways, such as:

IPOs – You can invest in an IPO only after thorough research and understanding the risks involved. The Indian REIT market is still developing and has limited options, so waiting for the next REIT IPO to be launched is best.

Mutual funds – You can also invest in REITs through mutual funds, but the exposure to real estate is limited, and only a few domestic mutual funds invest in REITs. Someone who wants to invest in international real estate can invest in Kotak International REIT Fund of Fund.

Stock exchanges – You can buy REIT units on stock exchanges similar to ETFs. To purchase these units, you should have a Demat Account. The prices of these units can change depending on their demand and performance. There are only three REIT options in India: Mindspace Business Park REIT, Brookfield India Real Estate Trust, and Embassy Office Parks REIT.

REITs are one of the best investment options for people interested in real estate in India. It gives them an excellent opportunity to pump their money into income-generating real estate assets. Big and small investors can also invest in the real estate market. REITs offer minimum drawbacks and benefits such as regular income, liquidity, and diversification. If you are interested in investing in REITs, do make sure to understand the potential risks involved. Diversifying your portfolio and earning regular income from the real estate market can be a good investment option.