‘Own' malls, farms, dams, toll plazas via REITs, InVITs
Do you chase overvaulting dreams like owning malls in Mumbai, office spaces or warehouses in Bengaluru?
Do you daydream about owning highways, renewable energy projects, toll plazas, dams or power grids in India? Well, you aren't chasing a wild goose any more. Thanks to REITs and InVITs — a ticket to your real-estate dreams. Let's catch a glimpse of what the play is about and who are all the players.
What are REITs?
Real Estate Investment Trusts (REITs) offer an opportunity to invest in real estate but without owning them physically. Like a mutual fund house which pools in money from investors and invests in equity, REITs pool in money to purchase real estate.
REITs may generate income in the form of rents or by way of capital gains on sale of properties. The profit is derived after adjusting various operational costs and paid to investors in the form of dividends, in proportion to the units purchased.
What are InVITs?
Infrastructure Investment Trusts (InVITs) are one of the financial instruments through which retail investors can invest in the country's infrastructure projects in which, earlier, only institutional players could invest. By investing in InVITs, retail investors can enjoy steady income streams, in the form of dividends. Further, when the country's economy grows, their capital would appreciate in the long run. With InVITs, investors become part-owners of infrastructure projects in proportion to the units bought.
Regulation, benefits
Regulated by the Securities and Exchange Board of India (SEBI); diversification; liquidity (if listed); payment of dividends; no hassles of property registration; no documentation work; no need for searching tenants; zero cost of property maintenance; it's dirt cheap compared with buying physical properties. You can buy even a single unit of a REIT or an InVIT.
What are the risks?
Market volatility, regulatory changes and interest- rate fluctuations might affect their performance. Investors who do not have a long-time horizon, say five or more years, can avoid investing in these assets. Further, risk-aversive investors can choose other safer traditional assets.
How to buy?
You can buy listed REITs and InVITs just like stocks through your broker platform via demat account.
Some of the prominent listed REITs are Embassy Office Parks, Mindspace Business Parks, Brookfield India Real Estate Trust and Nexus Select Trust.
Some of the prominent listed InVITs are PowerGrid Infrastructure Investment Trust (PGInVIT), IRB InvIT, India Grid Trust, National Highways Infra Trust, IRB Infrastructure Trust, Sustainable Energy Infra Trust and Energy Infrastructure Trust.
If unlisted?
Unlisted REITs and InVITs are offered via private placements, especially for high net worth individuals (HNIs) or institutional investors. They can be bought from wealth management firms or from certified financial advisors, but the minimum investment norm is very high.
Even unlisted REITs must adhere to rules regarding income distribution, disclosure norms and so on. However, one needs to be careful as units of non-listed REIT are not traded on exchanges and thus carry liquidity risk.
Further, non-listed REIT comes with a lock-in period and encashing it before the stipulated time is not easy. Of course, there are buyback options offered by the sponsors of REITs but that might be after a few years.
Unlisted REITs might offer higher yields but that comes with a price. They do not have adequate transparency, carry high risks, require higher capital coupled with low liquidity.
Therefore, listed REITs and listed InVITs are comparatively a safer bet for retail investors.
Conclusion
If you are tired of managing real estate physically, if you are fed up with frequent tenant-hunts, if you are averse of preserving bundles of property papers, but still interested in gaining exposure to tangible real-estate properties, then REITs come in handy.
If you are interested in enjoying a portion of income generated through public infrastructure projects, then you can invest in InVITs.
If your main goal is to diversify your portfolio, then both REITs and InVITs are good options, provided you have a considerably longer investment time horizon, but do not put all eggs in one basket.
(The writer is an NISM & CRISIL-certified wealth manager)
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