Real Estate Investment Trusts in India
Emerging opportunities in the sector
REITs were first conceptualised in the second half of the 20th century in the United States intended to provide individual investors with alternative instruments for investment in the real estate industry. Popularly called as “units”, these instruments then primarily invested in only mortgage backed securities, however, today, they consist primarily of income generating real estate properties.
REITs were originally designed as passive investment vehicles, modelled after mutual funds. They offer investors an opportunity of earning simultaneously across various real estate categories, resulting into the realization of a regular income stream, diversification and long-term capital appreciation. These instruments typically pay out more than 90% of their taxable income as dividends to unit holders.
In India, REITs were formally introduced in the budget session of FY2014-2015, laying the concrete foundation in the country. SEBI released detailed guidelines for the public issue of REITs in 2016 and Blackstone, a leading private equity firm, has taken the first step towards entering the REIT market in India. Dire need for organized sources of capital and changing regulations (RERA, Benami Act 2016 etc.) further builds up the case for such instruments in the country.
We think that the various economic developments, advent of several multinational companies, the increasing start-up culture and its demand for office space will augur well for the real estate sector, and in turn the REITs. Introduction of these instruments will allow small investors to benefit from this sector in a safe manner.
This publication talks about the need, advantages, scope, issues and regulatory guidelines of REITs. Click on the image to download the complete report.