We will look at how you can invest in real estate at as low as the cost of a Starbucks coffee.

The story

Real Estate Investment Trusts (REITs) have been around for a while in India, having Assets Under Management (AUM) of ₹1.4 lakh crore, and about 2.5 lakh unitholders.

While the SEBI brought in regulatory guidelines for REITs in 2014, the first public REIT was launched not until 2019.

REITs simplified

A REIT pools investors’ money and invests in commercial real estate properties. These properties are then rented out and income is distributed to investors proportionately.

Consider it a Mutual Fund but for real estate, regulated by the SEBI and also listed on stock exchanges.

With just four publicly listed REITs, India has the least number of REITs in the Asia-Pacific Region and it has yet to witness an inflection point.

So here comes the push to make it more accessible to the public.

What has changed

To make REITs more transparent so that it can attract more investors, the Indian REITs Association (IRA) on 18th September launched the Data Benchmarking Institute (DBI).

It will provide investors with detailed data on REIT performance, operational metrics, and valuation standards, enabling more informed, data-driven investment decisions.

The idea behind the creation of REIT was to make commercial real estate investments affordable for investors, facilitating them to diversify their portfolios. At the same time, it would also bring more transparency to real estate investments. However, the growth of REITs in India in the past ten years has been lackluster.

The features of REITs

To make it a replica of traditional real estate investments, the SEBI mandates that:-

  1. It must invest 80% of its portfolio in income-producing properties.
     
  2. Every quarter, it must distribute at least 90% of its cash flows, including rental income and sale proceeds (if any) to its investors.

So basically, these regulations make sure that you would receive a regular income, as you could from traditional real estate property but with a lower ticket size and flexibility to enter and exit at your convenience.

Regarding returns, REITs’ yield has been anywhere between 6% to 8% annually.

To conclude

Research shows that in India, REITs could grow multiplefold.

With regulators trying hard, will investors adopt REITs as an alternative to traditional real estate? Only time will tell.