What Is the Role of REITS in Real Estate

Known as a saving economy, Indians are pretty cautious when making investments, sticking to only a few niche segments, one of them being the real estate sector. Over the years, there has been a significant change in the landscape of this area of fixed assets. The projected mark for real estate is to reach ₹13 lakh crores this year, with Maximum City Mumbai already having recorded 8,800 property registrations in January. Surprisingly, an 8% price hike has not affected the demand either.

As real estate continues to be one of the preferred choices of Indians when it comes to investment, let us look at some of its types.

• Long term rentals
• Commercial property rentals
• House Flipping
• Short-term vacation rentals
• REITs, REIGs, Mortgage investment, and Mortgage-backed securities 

Recently, Real Estate Investment Trusts, also known as REITs, have gained much traction. Thus in this blog, we will talk about everything we need to know about it, from its meaning, types, benefits, and how they generate returns for its investors.

What are REITs?

A Real Estate Investment Trust is a company that owns and operates high-income generating properties such as office and apartment buildings, warehouses, malls, hotels, etc. A concept similar to mutual funds, REITs allow their investors to pool money with a manager overseeing all operations and assets.

Now arrives the question of how does an investor make his returns? 
The investor receives their income/dividends through the rent collected via leasing out properties.

Types of REITs

• Equity: Most REITs are equity in nature and are concerned with managing and operating high-income generating real estate, commercial in most cases. The source of income is rent, in this case.
• Mortgage REITs: These REITs lend money to real estate owners directly or via mortgages and loans. They tend to acquire mortgage-backed securities and generate income on the interest accrued on the money they lend.
• Hybrid REITs: You can invest in equity and mortgage, doubling your income with rent and interest.
• Private REITs: Not registered under the National Securities Exchanges or Securities and Exchange Board of India (SEBI), private REITs have their trusts and group of selected investors.
• Publicly traded REITs: Real estate trusts offering shares to investors who can sell and purchase and sale shares through the NSE, with SBI regulating this trust.
• Public non-traded REITs: Registered under SEBI, they are non-listed REITs that cannot be traded on the NSE. Compared to publicly traded REITs, they are less liquid but offer more stability towards market fluctuations.

Benefits of investing in REITs

• Steady source of income: Investing in REITs frees you from all the hassles of maintenance, allowing you to sit back and reap the benefits of your investments.
• Diversification option: REITs offer a chance to diversify your portfolio, allowing you to go beyond the usual equity, debt, and gold.
• Complete transparency: Regulated by SEBI, REITs are required to generate audited financial reports. An investor can access information on taxation, ownership, and zoning.
• Capital gains: Since they are listed and traded on stock markets, the price of REITs depends on their performance. Thus if the REIT performs well over time, the investor could earn capital gains.
• Liquidity: Most REITs trade on public stocks, making it easier to buy and sell, which adds to the liquidity aspect.
• Managed by professionals: REITs are handled by professionals, making them stress-free for investors and ensuring smooth operations. 

With real estate here to stay, investing in REITs could be a viable option, especially for those wanting to avoid the constant back and forth with tenants and the efforts of maintaining a property.