Real Estate Investment Trusts and Infrastructure Investment Trusts

Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) are the investment tools through which investors may invest money in real estate and infrastructures without owning them. This post discusses the REIT and InvIT and their status in India. These schemes were available in many developed countries for a long time but they are launched in India a few years back. 

 

reit invit

What is the Real Estate Investment Trust (REIT)?

Real Estate Investment Trusts or REITs are the companies that own income-producing commercial real estates. It allows individuals to buy shares in these real estates for which the investors receive an income over a fixed interval of time. These companies manage properties such as offices, shopping complexes, hospitals, warehouses, hotels etc. and a variety of commercial properties in their portfolio. The stocks of these companies are traded on the exchanges. They pay to investors the income in form of dividends generally in every six months period. 

    The REIT lease their owned properties on rent. They distribute 90% of this collected rents as income in form of dividends to the shareholders. There are 3 types of REITs:-

  1. Equity REIT: The equity REITs buy, own, and manage income-producing real estate properties directly. They generate revenue primarily through rent.
  2. Mortgage REIT: Mortgage REITs do not but properties directly.  They lend money to real estate owners and operate indirectly through mortgage-backed securities. They generate revenue primarily through interest margin.
  3. Hybrid REIT: Hybrid REITs work in both ways – equity and mortgage.
What are the Infrastructure Investment Trusts (InvITs)?

Infrastructure Investment Trust or InvIT is very much similar to REIT. They both work on the same concept but we can say that the InvIT is the modified version of REIT. InvIT invests in infrastructure projects including roadways, highways etc while REIT invests in the commercial real estate properties. 

Status of REIT and InvIT in India

The Government of India approved the creation of REIT in the year 2014. The government and the Securities and Exchange Board of India (SEBI) through various notifications are in the process to ease the investment process easy for individual and for foreign investors

Advantages of REIT and InvIT
  • Liquidity
  • Diversification
  • Transparency 
  • Dividends
  • Performance
Limitations of REIT and InvIT
  • Low growth
  •  Taxation on Dividends
  • Market Risk
  • High Fees

 

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Tags: #REIT #InvIT #Investment #Real Estate #Infrastructure

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