The Indian real estate sector has been a lucrative investment option for savvy investors being the 2nd most prominent income generating sector after agriculture.
REIT allows even the small budget investors to make a safe and a rewarding investment.
A real estate investment trust, or REIT, is a company that owns, operates or finances income-through real estate. REITs are traded on major exchanges and provide investors with a liquid stake in real estate.
- According to a report from Cushman & Wakefield – The potential of commercial properties in India that are a ‘REITable’ investment is between $43 billion and $54 billion across top cities.
With factors like a favorable Union Budget 2017-18 for home buyers and property being the favorite investment of Indians which provide greater satisfaction to them than mere paper investments; REIT investment can be a hot cake.
How does REIT works?
Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) are mediums thru which private investment in infrastructure and real estate can be made.
It allows for individual investors with a small a sum of Rs 2 lakhs, to secure units in exchange. The money thus collected is pooled into a REIT fund whereby investors acquire ownership in commercial real estate portfolios that receive income from properties such as apartment complexes, office buildings, hotels and shopping malls.
Capital gains accruing from the sale of the commercial assets are distributed to an investor in a way where 90% of income is distributed as dividends to investors.
The size and structure of a REIT
The SEBI board has kept the minimum asset sizes to be invested in, at Rs 500 Crores. However, the minimum issue size would have to be less than Rs 250 Crores. As with stocks, the investors will be able to buy the units from either primary and/or the secondary markets.
REITs is structured as trusts where assets are held with independent trustees for investors.
Equity REITs- The majority of REITs are publicly traded whereby REITs own or operate income-producing real estate.
Mortgage REITs – mREITs provide financing for the income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
Public non-listed REITs – PNLRs are registered with the SEC but do not trade on national stock exchanges.
Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.
REIT Guidelines in India
|Investment Guidelines in India||REIT has to invest at least 80% of its total assets in completed and rent-generating real estate, with a lock-in period of 3 years
A maximum of 20% of the total value of REITs can be from:
|Fundraising through public offer of units||Minimum value of REIT assets: INR 500 crore
Slabs for minimum offer size
If post issue capital < NR 1,600 crores – minimum 25% or INR 250 Crores, whichever is higher
|If post issue capital =/> INR 1,600 Crores but < INR 4,000 crores – minimum INR 400 Crores
If post issue capital =/> INR 4,000 Crores but < INR 4,000 crores – minimum 10%
|Minimum offer size: INR 250 crore
Minimum subscription amount: INR 10 lakh
Trading lot: INR 5 lakh
Minimum number of unitholders (other than sponsors or related parties): 20
|Fundraising through private placement of units||Minimum value of InvIT assets: INR 500 crore
Minimum offer size: INR 250 crore
Minimum subscription amount: INR 1 crore
|Trading lot: INR 1 crore
Minimum unit holders (other than sponsors): 5
Maximum unit holders (other than sponsors): 1,000
Maximum 10% of the amount raised thru public issue could be used for ‘general purposes’ however Issue-related expenses is excluded