Generally speaking, as per Indian culture, owing a house is really important. We don’t see it as an investment, it’s a form of security for us. But things are changing. Now, people don’t want to make that kind of commitment. You will hear a lot of people brag about how they don’t invest in buying a property, so much so that they rather stay in a rented apartment. Some will only focus on the risks associated with Real Estate, and how illiquid the asset class is. Imagine if one does buy properties to diversify into this sector, the hassle of finding suitable tenants, maintenance of the property, insurance, wait time for value appreciation, etc., would burden the investor.
Well, it is true that Real Estate is a relatively illiquid asset class. Also, one needs to have huge fund at her/his disposal to take advantage of this sector.
Now the question arises, How can one diversify into Real asset without blocking a huge amount, take advantage of value appreciation, beat inflation, and yet surpass all the disadvantages?
With the ever-changing world, we now have opportunities to foray into this sector without having to worry much. This article will primarily focus on how you can still invest in this sector without actually having to buy a property or even without huge capital.
One can think of REITs (Real Estate Investment Trust).
Retail investors can invest in this asset class, which will allow them ownership on the basis of the amount of investment they make. Basically, REITs are investment trusts that pool funds from potential investors against units. It utilises this fund to invest in high end income generating property in the Real Estate sector.
REITs utilise the money they receive to make investment into various types of Real Estate. Such as Residential property, commercial projects, shopping malls, Hospitals, etc. REITs can earn through both rental income, buying and selling of property, value appreciation and even through lending money.
Initially when REITs was introduced in India, the minimum ticket size was not suitable for retail investors. However, now the situation is different. One can apply for an REIT IPO with as low as Rs. 10,000 to Rs. 15,000. Alternatively, REITs are listed on the Indian Stock Exchange market. Therefore, one can also buy shares of these REITS to gain exposure, with as low as Rs. 250 – 350 per unit. Investors gain in the form of capital appreciation, dividend and interest.
Advantages of REITs are
· Professional Management – REITs are professionally managed, and regulated by SEBI. Thereby, making this investment class transparent and less risky.
· Low Capital requirement – One can invest in Real Estate through these trusts with as low as Rs.10,000 to Rs. 15.000. Once the shares get listed on the bourses, it can be traded easily. One only needs a Demat account.
· Diversification – For any investor, Diversification is extremely important. REITs allows one to gain exposure into the Real Estate world, and take advantage of the benefits of owning a property without all the hassle actual ownership may cause.
· Beats inflation – Similar to actual real estate ownership, REITs help beat inflation. REITs provide capital appreciation as well as dividend income. Additionally, it helps one save a set of expenses they otherwise would have had to incur, such as stamp duty, maintenance charges, etc.
· Liquidity – One of the major reasons why REITs gained so much popularity is because of the liquidity it provides. Also, REITs in India are listed on the exchange and can be publicly traded. This adds to the liquidity aspect, thereby, making entry and exits easy for an investor.
· Easy Entry and Exit – The liquidity aspect make entry and exit easier for unit holders without loss of capital.
· Convenience – The biggest advantage of REITs, the very basic reason it came into existence is because they offer convenience to the investor.
There are various types of REITs available in India. The first REIT was launched in 2019, and latest in 2022. In Total, 3 REITs are available for investment in India, namely, Brookfield India REIT, Embassy Office Parks REIT and Mindspace Business Parks REIT. Blackstone’s nexus Select Trust REIT IPO has opened for subscription on 09th May 2023. It is expected to get listed on the bourses on 19th of May.
Please remember, no investment is completely risk free. Every investment class has some risk, however little, associated with it. It is important to conduct research before investing. I have primarily focused on the advantages in this article, because I found it interesting. This article is not sponsored, and does not constitute as a professional investment advice. Please contact your investment advisor before making any decision.