What is the Best Way to Invest in REITs?
REITs, the same real estate investment trust, is a company that owns, operates and finances income-generating real estate. It owns and operates a portfolio of commercial rental buildings and mutual funds that own a portfolio of shares.
It entered the Indian market in 2019, Where Embassy Park REIT became the first listed REIT in the country. In India, the market watchdog regulates only publicly listed REITs registered with India’s Securities and Exchange Commission, Unlike in the US, where private and public non-public businesses are under control.
REITs Benefits
REITs are now available to be traded on the Indian Stock Exchange; This allows you to own part of a revenue-generating portfolio. As an investor in REIT, you can make money in two ways: by increasing the value of your stock and by paying dividends. It must transfer 90 percent of its portfolio net rental income in the form of dividends; Or as an interest to its shareholders. REITs are a constant source of income with minimal risks. They invest in commercial real estate, such as offices and malls that provide regular income.
There are several advantages to investing in REITs. Gross investment returns range from 12-20 percent per year, including dividends and capital increases. Reimbursement from dividends is 5-7 percent per year. REIT shares offer instant liquidity as they trade publicly. Imagine selling real estate in seconds! You can buy only one share of REIT, starting at around 300-350 Rs per share. It’s as good as buying real estate for a few hundred rupees.
In public trade, REITs are regulated by Sebi, which is strictly controlled. By law, REITs must distribute 90 percent of their income, dividends, and interest income to shareholders. More than 90 percent of the dividends you receive from certain REITs are tax-exempt. However, consult your tax expert. REITs allow you to diversify your real estate portfolio in several locations in India.
What to Check When Investing in REITs
First, you need to determine what percentage of the finished space is rented? The occupancy rate is a good indicator of portfolio stability and success. Tenant quality and sectoral diversification are essential. This reduces the risk of vacancies and the risk of late payment of rent.
The greater the number of tenants, the more diversified you are as an investor. The more tenants who take up less space, the better; Than fewer tenants who individually occupy an ample space. If tenants who occupy a vast space are fired, the vacancy level increases by one shot. REIT owns assets in different micro-markets or cities better; Diversified rather than REIT owns assets mainly in one or two micro markets.
The dividend income that reflects the health of the governing entity and the portfolio is significant. Also, a higher dividend yield means a higher return on the investor. Also, evaluate past performance and stock price increases over one year, six months and three months if the stock has momentum, fine and good.
There are some significant differences due to the accounting processing of the property. Traditional stock indicators such as earnings per share and price-earnings ratio are not reliable for estimating REITs. The fundamental indicators are rental income growth, portfolio value growth, and profit growth.
Wale: This is the average lease term for the remaining tenants who occupy the buildings, Which form the REIT. This shows the stability of the portfolio. Higher WALE equals less vacancy risk. Also, have a professional real estate developer and fund manager; Proven experience ensures high-quality development, portfolio stability, and asset management.
Risks – What to Expect
Risk when investing is credit loss, which refers to the amount of rental income received. The property owner loses when tenants do not occupy the space. The term is generally associated with a negative connotation. A portfolio has the risk of a vacancy if tenants vacate the property. In addition, there is a risk of limited versions of REITs in India. It is worth noting that currently, India has only three listed REITs, which creates a minimal choice for investors.
Nevertheless, it is an attractive and relatively new way to invest in real estate. REITs are gaining popularity among real estate investors looking for safer, more affordable investment options. Everyone has their own goal of investing. The most important thing is to take steps to lead us to the desired goal.
