A Real Estate Investment Trust (“REIT”) is a trust that purchases and manages income property (“Equity REIT”) and/or mortgage loans using pooled funds from investors (“Mortgage REIT”). People who do not have enough money to invest in real estate but want to own property can benefit from REITs. The Trustee, Sponsors, Managers, and PrincipalValuer are the other key participants in REITs, in addition to Unit Holders/Investors.
The SEBI (RealEstate Investment Trusts) Regulations, 2014 (“SEBIREITs Regulations”) were notified by the Securities and Exchange Board of India (“SEBI”) on September 26, 2014, with the goal of regulating REIT investments. The SEBI REITs Regulations, among other things, define the registration requirements, registration method, and eligibility requirements for REITs and major players. The following are the essential highlights of the SEBI REITs Regulations:
REIT Eligibility: AREIT must be a trust established under the Indian Trust Act, 1882, and registered under the SEBI REITs Regulations. A REIT’s trust deed must be properly registered, and it must state that its primary goal is to engage in REIT-related activities. It should also include the Trustee’s responsibilities. There should be no disciplinary action taken against the REIT or any linked party by the SEBI or any other regulatory authority. According to Schedule II of the SEBI (Intermediaries) Regulations, 2008, the parties to the REIT must be fit and proper individuals. Furthermore, numerous classes of REIT units are not permitted.
Investments made through an SPV: REITS can invest directly or through an SPV. If the investment is made through an SPV, it must have a controlling interest and at least 50% equity in the SPV. In addition, the SPV must own 80 percent of the REIT’s assets. Multiple schemes under REIT may not be approved, and multilayer SPV structures may not be permitted.
SEBI REITs Regulations mandate that at least 90% of netdistributable cash flows be distributed to investors on a half-yearly basis, as well as at least 90% of the sale profits from asset sales be distributed to unit holders, unless reinvested in another property.
Foreign Investments in REITs: The RBI, in a circular dated April 21, 2016, allowed foreign investors to invest in REITs without requiring prior authorisation.
NRIs and FPIs are now permitted to purchase REIT units.
The circular also states that REITs’ downstream investments will be considered foreign if either the Sponsor or the Manager is not an Indian ‘owned and controlled’ entity as defined in Regulation 14 of the Foreign Exchange Management(Transfer or Issue of Security by a Person Resident Outside India)Regulations, 2000.
If the sponsors or managers are not constituted as corporations or limited liability partnerships, SEBI has the authority to evaluate whether the sponsor, manager, or investment manager is foreign owned and controlled.
Open to high-net-worth individuals and institutions: Until the market matures, REIT units can only be sold to high-net-worth individuals and institutions with a minimum subscription quantity of INR 2 lakhs and a unit size of INR 1 lakh apiece. The voting rights of all unitholders are equal. Furthermore, related-party voting for any unit holder’s approval is not taken into account.
Valuation Requirements: SEBI REITs Regulations stipulate that all REIT assets must be fully valued on a yearly basis by a registeredvaluer. Semi-annual updates are also required. The Net Asset Value of assets must be declared within 15 days after the date of valuation/update of asset valuation. Any purchase or transfer of REITAssets must adhere to the established valuation rules.
REITs must raise capital through an initial public offering, followed by follow-on offerings, rights issues, and qualified institutional placements, e.g., e.g., e.g., e.g., e.g., e.g., e.g., e.g., e.g., e.g., e.g. The following are the SEBI Regulations in this regard:
- In the event of a follow-on offer, rights issue, qualified institutional placement, etc., detailed disclosures are necessary.
- REIT units must be in dematerialized form and must be listed on recognized stock exchanges in India, where they must remain until they are delisted in accordance with SEBI regulations.
- REITs must have a minimum asset size of INR 500 crore and a minimum offer size of INR 250 crore to qualify for an IPO.
- A minimum of 200 subscribers (excluding related parties) is necessary to incorporate a REIT, and the minimum public share in an initial offer should not be less than 25% of the REIT’s total number of units on a post-issue basis.
- The SEBI Regulations also include a method for removing REITs from the market.
REIT Investments: At least 80% of the value of a REIT’s assets must be invested in undeveloped and rent-generating properties. For investing the balance funds in other assets, some conditions must be met. Furthermore, REITs are expected to participate in at least two projects, with each project’s investment not exceeding 60% of the REIT’s total asset value. REITs are only allowed to invest in assets located in India. Finally, the SEBI REITs Regulations include a detailed list of inclusions (such as TDRs, land, and any permanently attached improvements to it (whether leasehold or freehold), and exclusions (such as hospitals, hotels, and convention centers with specific conditions, agricultural land, mortgages, units in other REITs, and so on).
- Dividend Distribution Tax (DDT): According to the 2016 Finance Budget, any distribution made from SPV income to REITs and infrastructure investment trusts with certain shareholding will be exempt from DDT. Unitholders and REITs are exempted.
- Capital GainsTax: (a) Capital Gains generated by REITs on the sale of SPV shares are taxable at the applicable capitalgains tax rates; (b) Long Term Capital Gains gained by unit holders on the sale of REIT units are free from taxation. Short-term capital gains are taxed at 15%; capital gains realized by sponsors on the sale of REIT units or the swap of SPVshares for REIT units are excluded.
- Interest from SPV: For REITs, the interest amount is tax-free, while for unit holders, it is taxed as income.
- Other income is taxed at the highest marginal rate for REITs, but is exempt for unitholders.
Although much has been done to liberalize REIT investments, further tax and regulatory incentives are needed to make REITs a true success in India and attract the right investors. The tax laws governing REITs do not provide much in the way of incentives, neither for the sponsor nor for the unit holders. To address the aforementioned, the current Union Budget proposes relief in the form of DDT exemption. However, further adjustments to the Income Tax Act must be considered by the government in order to offer a tax-efficient and stable system for REITs in India. The exemption is only possible if the sponsor transfers shares of the SPV in exchange for REIT units rather than transferring the property directly to the REIT. The lack of a sponsor exemption is expected to dissuade REITs from directly owning properties.
After DDT, capital gains tax is the second most significant impediment. When a REIT sells assets or shares of an SPV, the capital gain is taxable to the REIT. Investors are looking for a 100% pass-through. The government announced capital gains tax exemption at the hands of the sponsor in the previousBudget of 2015, but it is still an issue at the REIT level, where it is still relevant. Appropriate capital gains exemptions (both long and short term) should be made available. In addition, the Minimum Alternate Tax (MAT) on stock transfers to REITs should ideally be avoided.
Apart from the tax concerns mentioned above, there are a number of non-tax issues that could stymie REITs’ performance in India, including the following:
- The transfer of assets during the earliest stages of forming a REIT may be considered a transfer, which may be subject to stamp duty, which varies from about 5% to 10% depending on the state in which the property is located. In this regard, the government should consider waiving or reducing the applicable stamp duty on REITs for a specific period of years during which the REIT holds the property, or state governments could consider a one-time stamp duty waiver on transfers of assets to REITs or REIT-owned SPVs to encourage REIT formation at this early stage.
- Investment norms for international portfolio investors and non-resident Indians should be liberalized further. To that end, there should be no limit or restriction on the number of REIT units that these corporations can purchase.
- The Investment Regulations of the Insurance Regulatory and Development Authority (IRDA) should also be revised to allow insurance companies to invest in REITs, such as REITs.
- Changes should also be made to the provident fund framework, with REITs becoming suitable investments in the specified investment pattern.
- Units of REITs set up as trusts should be included in the Securities Contract (Regulation) Act, 1956’s definition of “security.”
- The requirement that a sponsor have a real estate track record would prevent many non-real estate businesses, such as banks and financial institutions, from becoming REIT sponsors. The track record requirement should ideally only apply to the sponsoring organization’s main employee(s) or partners, not the sponsoring entity itself. Furthermore, foreign sponsors should be permitted to purchase REIT units through the automated way. Swapping existing shares of an SPV held by a non-resident sponsor with REIT units should be permitted under automatic rout in this scenario.
In light of the foregoing, it is critical for the government to expedite taxation and other regulatory modifications and reforms in order to promote REITS in India and have the desired economic impact.
The purpose of this article is to provide a general overview of the subject. You should seek professional guidance regarding your individual situation.
How can I create a REIT in India?
- 90% of profits must be transferred to shareholders in the form of dividends.
- A minimum of 80% of the investment must be put in properties that can generate revenue.
- Only 10% of the total investment must be placed in real estate that is still under construction.
Is REIT a good investment in India?
As a result, in addition to cheap entry levels, REITs offer investors a safe and diversified portfolio with low risk and expert management, providing good returns on investment. REITs will be distinguished not only by their investment in real estate assets, but also by their restricted responsibility for all unitholders.
That’s not all, though. According to the criteria, finished projects must account for 80% of assets, while under-construction projects, equity shares, money market instruments, cash equivalents, and real estate activities account for 20%.
REITs allow investors to put their money into a diverse portfolio of commercial real estate assets. Investors who choose the direct investment path for commercial office spaces invest in a single office building.
Will REITs be able to provide the same returns on investment as’actual’ real estate investments? This is a question that small investors will be asking. No, that is not the case. Certainly, investors expecting for unreasonable profits (>20-30 percent) should go elsewhere. It’s critical to have realistic expectations for REIT returns. After adjusting for the fund management cost, a realistic ROI estimate would be in the range of 7-8 percent each year.
The return on investment (ROI) from REITs will be highly structured, realistic, and risk-averse. Investors who desire a regular income with no risk might consider REITs. Furthermore, REITs can provide investors with two types of income: capital gains from the selling of REIT units and dividend income. REITs will also be a good investment option for investors who want to diversify their portfolio beyond gold and the stock market.
REITs have already been introduced in India, and investors have seen excellent returns. The successful REIT listings in India have piqued investor interest in this new investment vehicle, and we expect more REIT listings to follow soon.
What is minimum investment in REIT in India?
REITs, like equity shares, are listed and traded on the stock exchange. As a result, if you want to invest in REITs in India, you’ll need a demat account.
- Previously, an investor had to spend a minimum of INR 50,000 in REIT units; however, this criterion has been removed, as per a notification issued by SEBI on July 30, 2021, for investing directly through stock exchanges. Initial public offerings (IPOs) and follow-on offers now have a lower minimum investment requirement of INR 10,000-15,000, down from INR 50,000 previously (FPOs).
- Another regulation change is the change in the lot size of REITs traded, which was previously set at 100 units. The minimum lot size has been reduced from 100 units to one unit as a result of the same SEBI regulation.
- There are three REITs that allow investors to invest in India at the moment. These are some of them:
Do REIT pay dividends?
A REIT is a security that invests directly in real estate and/or mortgages, comparable to a mutual fund. Mortgage REITs engage in portfolios of mortgages or mortgage-backed securities, whereas equity REITs invest mostly in commercial assets such as shopping malls, hotel hotels, and office buildings (MBSs). A hybrid REIT is a fund that invests in both. REIT shares are easy to buy and sell because they are traded on the open market.
All REITs have one thing in common: they pay dividends made up of rental income and capital gains. REITs must pay out at least 90% of their net earnings as dividends to shareholders in order to qualify as securities. REITs are given special tax treatment as a result of this; unlike a traditional business, they do not pay corporate taxes on the earnings they distribute. Regardless of whether the share price rises or falls, REITs must maintain a 90 percent payment.
Is REIT dividend taxable in India?
Pankaj Mathpal, Founder & CEO of Optima Money Managers, said, “Long-term investment in REITs helps an investor earn more.” “REIT investment is preferable to direct real estate investment since it provides greater liquidity to the client. Aside from that, when investing in REIT shares, the investor receives an indexation benefit on long-term investments, which is not accessible when investing in direct real estate. In a long-term REIT investment, cost appreciation is applied to one’s income, resulting in a lower net income tax outgo, but in real estate, one’s income is simply the difference between the buy and sell price of one’s property.”
Vishal Wagh, Research Head at Bonanza Portfolio, highlighted the income tax benefit of long-term REIT investing, saying, “The REIT is tax-free on the interest and dividends it receives from the SPVs. Rental revenue earned by the REIT, which it would have earned if it owned property directly, is likewise tax-free. The REIT’s rental revenue is tax-free in its hands, but taxable in the hands of the investors. When selling valued stock, you can spread out the capital gains over a period of years. Unfortunately, real estate investment does not have the same benefit; you must claim the entire gain on your taxes in the year the property is sold.”
Can you lose money in a REIT?
- REITs (real estate investment trusts) are common financial entities that pay dividends to their shareholders.
- One disadvantage of non-traded REITs (those that aren’t traded on a stock exchange) is that investors may find it difficult to investigate them.
- Investors find it difficult to sell non-traded REITs because they have low liquidity.
- When interest rates rise, investment capital often flows into bonds, putting publically traded REITs at danger of losing value.
Can you get rich investing in REITs?
There is no such thing as a guaranteed get-rich-quick strategy when it comes to real estate equities (or pretty much any other sort of investment). Sure, some real estate investment trusts (REITs) could double in value by 2021, but they could also swing in the opposite direction.
However, there is a proven way to earn rich slowly by investing in REITs. Purchase REITs that are meant to grow and compound your money over time, then sit back and let them handle the heavy lifting. Realty Income (NYSE: O), Digital Realty Trust (NYSE: DLR), and Vanguard Real Estate ETF are three REIT stocks in particular that are about the closest things you’ll find to guaranteed ways to make rich over time (NYSEMKT: VNQ).
Weak Growth
REITs that are publicly listed are required to pay out 90% of their profits in dividends to shareholders right away. This leaves little money to expand the portfolio by purchasing additional properties, which is what drives appreciation.
Private REITs are a good option if you enjoy the idea of REITs but want to get more than just dividends.
No Control Over Returns or Performance
Investors in direct real estate have a lot of control over their profits. They can identify properties with high cash flow, actively promote vacant rentals to renters, properly screen all applications, and use other property management best practices.
Investors in REITs, on the other hand, can only sell their shares if they are unhappy with the company’s performance. Some private REITs won’t even be able to do that, at least for the first several years.
Yield Taxed as Regular Income
Dividends are taxed at the (higher) regular income tax rate, despite the fact that profits on investments held longer than a year are taxed at the lower capital gains tax rate.
And because REITs provide a large portion of their returns in the form of dividends, investors may face a greater tax bill than they would with more appreciation-oriented assets.
Potential for High Risk and Fees
Just because an investment is regulated by the SEC does not mean it is low-risk. Before investing, do your homework and think about all aspects of the real estate market, including property valuations, interest rates, debt, geography, and changing tax regulations.
Fees should also be factored into the due diligence process. High management and transaction fees are charged by some REITs, resulting in smaller returns to shareholders. Those fees are frequently buried in the fine print of investment offerings, so be prepared to dig through the fine print to find out what they pay themselves for property management, acquisition fees, and so on.
What is the lot size of embassy REIT?
Embassy Office Parks REIT (Embassy REIT), India’s first publicly traded REIT, said today that its trading lot size on Indian stock markets will be decreased from 400 to 200 units. The move comes after the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) announced a reduction in trading lot size on August 29, 2019.
“We appreciate this proactive move by the regulator and stock exchanges,” stated Michael Holland, CEO of Embassy REIT, in response to the regulatory reform. The smaller lot size, together with Embassy REIT’s stellar performance since its initial public offering, will enhance retail involvement in what is undoubtedly India’s best office portfolio.”
Embassy Office Parks is India’s first and only publicly traded real estate investment trust (REIT). The REIT owns and operates commercial buildings totaling 25 million square feet (msf) across India. The total portfolio spans 33 million square feet across seven Grade A office parks and four city-center office buildings in India’s best performing office markets of Bengaluru, Mumbai, Pune, and the National Capital Region, with approximately 8 million square feet of on-campus development in the pipeline (NCR). Over 160 blue-chip corporate occupiers call the portfolio home, which includes 75 buildings with strategic facilities, including two completed hotels, two under-construction hotels, and a 100MW solar park that provides sustainable energy to park tenants.
How many REITs are there in India?
“Every person who invests in well-selected real estate in a rising portion of a successful city selects the surest and safest path of becoming independent, for real estate is the basis of prosperity,” US President Theodore Roosevelt famously observed. Over hundreds of years in India, real estate has been the most popular form of investment, and interest in real estate has traditionally meant owning private property primarily for self-residence.
The option of investing in commercial real estate, such as shops and office space, has been comparatively less explored, as such investments require large investment amounts; and, in addition to the investment hurdles, the hassles of obtaining necessary regulatory approvals, long-term leases from viable tenants, and ensuring timely receipt of lease rent, form the major reason for which investment in commercial real estate is expended.
Prior to the introduction of the Real Estate Real Estate Investment Trust (“REIT”), another popular option to obtain exposure to the real estate sector was to invest in the equity securities of publicly traded real estate businesses such as DLF, Embassy Office, Oberoi Realty, and others. However, despite the fact that real estate is the underlying asset, such investments have always been subject to market risk and involve a high level of volatility. As a result, only a small percentage of people are able to include Real Estate in their investing portfolio.
By enacting the SEBI (REITs) Regulations, 2014 as amended from time to time, the Securities and Exchange Board of India (SEBI) introduced the concept of REITs in India with the goal of providing much-needed capital to the real estate sector and channeling funds from retail investors into the formal system. The SEBI REITs Regulations, among other things, set out the registration requirements, procedure for registration, and eligibility requirements for REITs. However, all REIT units, whether publicly issued or privately placed, must be listed on a recognized stock exchange with nationwide trading terminals.
REITs, or real estate investment trusts, are investment vehicles that, like mutual funds, own, operate, or finance rent/income generating real estate assets such as apartment complexes, office buildings, hotels, and retail malls. REITs are real estate investment trusts (REITs) that hold or finance income-producing real estate across a variety of property industries. They offer all investors the option to own valuable real estate, as well as dividend-based income and overall returns, while also assisting communities to grow, thrive, and revitalize. REITs enable people to invest in real estate asset portfolios in the same way they do in other industries: by purchasing individual business shares or a mutual fund or exchange-traded fund. A REIT’s owners receive a portion of the income generated by real estate investment – without having to buy, operate, or finance the property themselves.
Real Estate Investment Trust (REIT) is an abbreviation for a corporation that develops and owns ‘income producing’ real estate holdings. A REIT, unlike a publicly traded real estate business, isn’t founded to construct and resell real estate properties; rather, its primary goal is to purchase real estate holdings with the express purpose of leasing them and managing them to maintain a steady yield as part of an investment portfolio. REITs provide investors with meaningful real estate exposure without requiring them to own or manage properties on their own.
REITs and Mutual Funds are similar in that they both allow investors to combine their resources and have the assets managed by a designated person-in-charge. However, while mutual funds’ underlying assets are typically equities, debt, gold, or a combination of these, REITs’ underlying assets are primarily real estate holdings or loans secured by real estate.
When a firm agrees to form a REIT, it becomes the REIT’s sponsor and names a trustee. The underlying real estate assets of such established trust are held in trusteeship by the trustees, and the Sponsor no longer has direct authority over these assets. To qualify as a REIT, companies that own or finance real estate must meet a variety of organizational, operational, distribution, and compliance standards.
Though the first REIT in India was only established in March 2019, it was an equity REIT that was only allowed to invest in commercial properties according to SEBI requirements. Nonetheless, given the Real Estate sector’s dynamic nature and ongoing flux, it’s not impossible that other types will emerge in the near future. REITs can be classified as follows based on their Real Estate holdings:
1. Real Estate Investment Trust (REIT)
REITs like these buy, manage, build, and sell real estate, and then pay out the majority of the profits to their shareholders in the form of dividends. When people talk about REITs, they usually mean stock REITs.
2. Retail real estate investment trusts
These are REITs that invest in retail properties such as shopping malls, grocery stores, and supermarkets. These REITs, on the other hand, are not actively involved in the operation of these retail stores; instead, they just lease the space to retail tenants.
3. Real estate investment trusts (REITs)
Residential real estate investment trusts (REITs) own and run residential properties such as apartment complexes and gated communities. This is one of the most potential sectors of growth in India, given the never-ending need for residential property.
4. REITs in the healthcare sector
These companies generally invest in and manage healthcare-related properties such as hospitals, nursing homes, retirement homes, and medical centers.
The concept of a Real Estate Investment Trust is relatively new in India, and the first set of guidelines were introduced by SEBI in 2007. After numerous modifications and clarifications from SEBI, the guidelines were later updated and notified via a notification dated September 26, 2014, with the goal of regulating investments in REITs. Despite this, India saw its first REIT after nearly five years and a slew of further revisions to the original 2014 legislation. In India, the current SEBI guidelines for REITs were.
At the moment, just three REITs have been officially registered and approved by SEBI: Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust. They all operate largely in the commercial real estate sector.
As previously stated, a REIT is a real estate investment trust that consists of a Sponsor, a Manager, and a Trustee, each of whom is vested with specific essential obligations with respect to the trust.
1. Become a sponsor
The individual who creates the REIT is known as a sponsor. They establish the REIT and transfer their property, or real estate assets, to the trust. As a result, a builder or developer who wants to raise money through a REIT usually acts as a sponsor.
Trustee No. 2
The trustee is an individual chosen by the sponsor to manage the assets on behalf of the unitholders.
3. a supervisor
The trustee hires a manager who is in charge of managing REIT assets and making investment decisions. Typically, the manager is a private firm controlled by the sponsor.
4. Owners of the units
They are the trust’s beneficiaries, and by purchasing REIT units, they become indirect owners of REIT assets. Indian residents or overseas investors can be unitholders.
5. An unbiased appraiser
A REIT selects a trustworthy independent valuer who values the REIT’s assets at regular intervals, in addition to the sponsor, manager, and trustee.
Additionally, the manager may employ auditors, registrars and transfer agents, merchant bankers, and custodians to carry out services incidental to the operation of REITs and to meet legal obligations.
A REIT’s assets might be directly owned by the REIT, or indirectly through a “special purpose vehicle” (SPV) or a holding company (Holdco) that owns such SPVs.
6. Special Purpose Vehicle (SPV)
A SPV is a firm in which either a REIT or a Holdco has or intends to own at least a 50% equity stake or interest. The SPV must spend at least 80% of its assets directly in properties and is prohibited from investing in other SPVs or engaging in any activity other than holding and developing properties, as well as any incidental activity pertaining to such holding and development.
Holdco is number seven.
A Holdco is a business or a limited liability partnership in which the REIT owns or intends to own at least a 50% equity holding or interest and has made investments in other SPV(s) that eventually own the real estate property or properties.
Other than holding the underlying SPV(s), owning real estate or properties, and any other activities related to and incidental to such holdings, the Holdco does not engage in any other activity. The aforementioned structure allows retail investors to invest in commercial real estate while generating a steady stream of passive income.
A REIT is a trust, as the name implies, and must be established in compliance with the Indian Trust Act, 1882, and duly registered under the SEBI REITs Regulations. It is critical that the trust deed of a REIT that is to be formed is properly registered, as it specifies the Trustee’s principal aim and obligations (s). It must also be guaranteed that the SEBI or any other regulatory authority takes no disciplinary action against the REIT or any linked party. The following conditions must be met in order for a corporation to qualify as a REIT:
- Dividends must be paid out to investors in the amount of 90% of the profit.
- A minimum of 80% of the investment must be put in properties that can generate revenue;
- Only 10% of the total investment must be placed in real estate that is still under construction.
Only in April of this year, when Embassy Business Park REIT became the first REIT to be listed in India, did REITs make their debut in India. Unlike in other countries, such as the United States, where both private and public non-listed REITs are regulated, only public REITs registered with SEBI are now regulated in India.
Because REITs, like exchange traded funds (ETFs), are listed and traded on stock exchanges, buying units on the stock market is the best way to invest. As a result, if you want to invest in REITs in India, you’ll need a Demat account. The price of REIT units on stock exchanges fluctuates based on demand for units as well as the REIT’s performance, just like ETFs. SEBI has announced two key changes to the laws for investing in REITs in India to encourage investors –
I The previous criterion of INR 50,000/- for an investor to invest in REIT units has been eliminated. For investing through initial public offerings and follow-on offers, the minimum investment amount is now INR 10,000/- INR 15,000/-; and
(ii) The minimum trading lot size for REITs has been decreased from 100 to 1 unit.
1. Broadening your horizons
REITs allow you to diversify your investment portfolio by providing Real Estate exposure without the headaches of owning and managing commercial property. As part of your overall Asset Allocation Strategy, this diversification allows you to move beyond the traditional asset groups of equity, debt, and gold.
2. Initial Investment Is Minimal
As previously said, one of the major drawbacks of real estate investing is the huge ticket size, particularly in the case of commercial properties. To deliver similar portfolio diversification benefits, REITs require a significantly smaller initial investment of roughly Rs. 50,000.
3. Professional Leadership
A REIT’s properties are professionally managed. This ensures that activities run smoothly and that you don’t have to put in any effort to manage Commercial Real Estate.
4. Generating Consistent Income
REITs earn money from rental collections and are obligated to share 90% of that money to investors in the form of dividends and interest payments. REITs provide investors with consistent income in this way.
1. Options are limited.
In India, there are now only three REITs and one International REIT Fund of Fund. This severely restricts the options available to investors.
2. A Lack of Liquidity
While REITs are listed and traded on stock exchanges, the number of market participants, particularly among ordinary investors, is currently limited. As a result, profitably selling REIT investments may be difficult, especially in an emergency. As a result, the investment’s liquidity is minimal.
3. Dividends that are taxable
In the hands of the investor, any dividend or interest received from REITs is fully taxed at the applicable slab rate. As a result, taxpayers in the 30% tax bracket will see a significant amount of their dividend income go to taxes. The taxes requirements, which are explained next, are another crucial factor to consider before investing in REITs.
Furthermore, REITs must participate in at least two projects, with each project’s investment not exceeding 60% of the REIT’s total asset value. Furthermore, REITs are limited to solely investing in assets located in India.
REITs are unique, but they aren’t for everyone. Due to many variables, such as low commercial real estate rentals and the performance of commercial real estate varying by geographical area, the REIT as an instrument has not been very effective. Though much has been done to liberalize REIT investments, further regulatory incentives as well as tax benefits for investors are needed to make REITs a true success in India and attract the desired investors.
In light of the foregoing, the government must expedite taxation and other regulatory modifications and reforms in order to encourage REITS in India.
How do I register a REIT?
To register a REIT with the Board, the sponsor must submit a Form A application on behalf of the Trust to the Board. Parties who want to REIT
Is Embassy REIT good investment?
The gradual recovery of many industries in the economy, including real estate, is likely to be impacted by the second Covid-19 wave. Despite the fact that the commercial category, notably office space, remained resilient in terms of occupancy during the challenging period of the previous year, the continued local lockdowns may have a short-term impact on leasing operations. Office players with properties in prime locations, on the other hand, may be able to resist the problems better. Embassy REIT is one of many office players that is well positioned to weather the short-term storm.
When the country was in complete lockdown for a short time and subsequently in partial lockdown for a few months last year, Embassy not only had occupancy above 90% but also had strong rental collections. The REIT had an occupancy rate of 89 percent and a rental collection rate of 99 percent in the March quarter of FY21. Despite the fact that several states, including Karnataka, have implemented local control measures, this is still the case. Some of the important variables that contributed to the REIT’s profitability were a broad client base, properties in desirable locations, and a healthy balance sheet with a comfortable net debt position (0.35 times net debt to equity ratio).
Embassy REIT could thus be a good alternative investment route for long-term investors with a risk appetite, given its resiliency. It is available in stock markets in multiples of 200 units. The REIT has dispersed its shares.
