Real Estate Investment Trust (REIT) is an investment vehicle which gives investors an opportunity to participate in the revenue earned from hotels, office buildings, residential properties, and interests in mortgage securities and/or other assets held by the TRUST. Essentially, investors act as a conduit and provide the REIT with the funds needed to purchase the underlying assets with intent of collecting future payouts.
Recently, SEBI relaxed REIT Regulations and made it the investment process simpler for the people which resulted in a stock surge to 4 percent. However, many of the Indian investors do not have a fair idea about the REITs because of which they don’t give it a thought.
Q- HOW DO REIT’s EARN THEIR MONEY?
A- REIT’s make their money by renting and selling properties. Tax incentives and depreciation play roles in bottom line profitability.
Q- HOW DO I BUY REIT UNITS?
A- Publicly traded REITs are bought and traded just like normal stocks in the stock exchange. You will be required to have a central depository system [CDS] and a trading account with a broker. You can then buy and sell units through the broker or via online trading just like buying stocks. Like buying and selling stocks, investors need to pay brokerage commission, clearing fees GST if applicable.
Q- WILL I BE TAXED?
A- No. The payouts you receive from the units are already subjected to taxes.
Q- HOW DO I JUDGE WHICH REIT TO BUY?
A- That depends on your personal investment style. The best way is to do your homework, research the trends of the REITs you are interested in, and then make your decisions on what you have found out.
Q- WHAT PERCENTAGE SHOULD THE REITS TAKE UP IN MY PORTFOLIO?
A- As the saying goes, don’t put all your eggs in one basket. Have a good mix of stocks, REITs and physical properties in your investment portfolio. However if you are only thinking on the lines of REITs then invest in those which invest in different real estates like retail, hotels, healthcare and offices.
Q- IF THIS IS GOOD WHY AREN’T MORE PEOPLE INVESTING IN REITS?
A- There can be several reasons, as some prefer to invest in physical real estate, where they can see the properties and can make substantial profits on resale. Others enjoy playing the stock markets, and moreover, REITs are considered a fairly new product in the market, and the awareness is not predominant. Nevertheless savvy investors feel that having a diverse portfolio is a hedge against uncertainty, and they will have REITs in their portfolios.
Q- SHOULD ONE BE WORRIED IF THE PROPERTY PRICES GO DOWN?
A- REITs earnings depend on the rentals, the clients sign an agreement for a stipulated period so the rents keep coming and this is not influenced by the market graph. This results in higher yields and higher payouts. Keeping in mind these are just general queries answered in the simplest manner, you should do your homework well before investing in REITs and see what type suits you.
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