Too poor to buy property but still want to invest in real estate? Try REITs

As real estate prices soar faster in 2022 than in the last five years, prospective home buyers might be in a tiresome race to invest in the best properties of their choice. But since buying real estate involves a lot of time and resources, investors can invest in REITs for an easier way out.

Real Estate Investment Trusts (REITs) are easier to invest in, can give regular income and also benefit investors since the property appreciates in value.  

Real estate is one of the top investment choices for Indians in 2022 and as per a survey by Housing.com and National Real Estate Development Council (NAREDCO),  47% of respondents prefer to invest in real estate as they expect prices to rise. But investing in real estate requires human involvement to quite an extent. You need to research property trends and industry rates, invest time in scouting properties based on your criteria and needs, indulge in massive careful calculations, look for a gazillion red flags and have the massive capital investment on your hands. 

Though people consider investing in property so that they can receive good rentals or have a secure place to stay, they also have to consider expenses like maintenance, property tax, water tax etc. Also buying a property in festive times like these could be tough since prices peak and everyone is fighting for the prize. 

Homebuyers who find this price change harder to adjust might find this trend alarming. So here's what they can do: invest in REITs. 

What are REITs? REITs are companies that collect money from institutions and the public and invest this money in real estate properties that generate income. Though REITs can invest in residential properties, office spaces, malls, or even hotels, Indian REITs mostly invest in office spaces. This is because office spaces help REITs earn capital appreciation and regular income.

Why are REITs a good option for investors? As per SEBI guidelines, REITs have to invest 80% of their funds in income or revenue-generating assets and also distribute 90% of their income to unit holders (by dividend or interest or both).

Though investing in physical properties requires you to make a 7-figure investment that runs into lakhs of rupees, REITs required a minimum investment of Rs 50,000 when it was introduced in India. Today, the minimum investment has further reduced and one can invest in a good REIT even if they have Rs 10,000 to Rs 15,000. 

In India, there are three main REITs that are listed on the stock exchange. These REITs mostly invest in commercial real estate, like office spaces. The three REITs are:   

• Brookfield India Real Estate Trust
• Embassy Office Parks REIT
• Mindspace Business Parks REIT

How is REIT investment different from buying real estate or real estate mutual funds? You might think that if you invest in real estate mutual funds (like L&T Infrastructure Fund or Tata Infrastructure Fund), you might get better returns. But the thing is: while REITs directly invest in real estate, real estate mutual funds invest in REITs which in turn means that mutual funds make lesser money than REITs. Also, since REITs have to pay 90% of their income as dividends, they end up being a source of regular income for investors, which is not the case with real estate mutual funds, who invest mostly for capital appreciation only. 

REIT market in India: Embassy Office Parks was India’s first REIT to list in 2019 and is the largest office REIT in Asia by area. It owns and operates more than 42 million square feet portfolio of office parks and office buildings in cities like Mumbai and Bengaluru.

Shares of 'Embassy Office Parks REIT' dropped by over 1.7% in September 27, 2022, after around 7.71 crore shares or 8.1% equity changed hands in a big block deal.  As per CNBC-TV18, Blackstone was set to sell 7.7 crore units of Embassy REIT worth Rs 2,650 crore at Rs 345 per unit. As per Mint, Abu Dhabi’s sovereign wealth fund was likely to pick up at least half of the stake that Blackstone would sell.