Real estate investment trusts or REITs will make participation in the real estate market much easier for investors in India. REITs are like mutual funds that invest in the real estate sector. They offer many more benefits for investors because of the lower investment needed and the higher liquidity since they are listed on an exchange.
Did you know that there are different types of REITs? However, you must note that the first REIT came into existence in India only in March 2019. This is an equity REIT and can invest only in commercial properties as per regulations issued by the Securities & Exchange Board of India (SEBI). However, it is not inconceivable that more types will be allowed in the future. So it’s always a good idea to know more about different types of REITs so that you don’t miss out on an investment opportunity.
Types of REITs
• Equity REITs: These are REITs that invest in offices, residential complexes, industrial estates, hotels etc. They acquire, manage, build and sell real estate, and distribute most of the income earned to its investors in the form of dividends. Income can come from rentals as well as sale of properties. When REITs are mentioned, they are usually equity REITs.
• Mortgage REITs: These REITs lend money to buyers of real estate, or acquire existing mortgages. They are also known as mREITs. Most of their income is derived from the interest they get on these mortgage loans. They are somewhat like a mutual fund that invests in debt. Of course, the risk component is higher compared to a debt fund.
• Retail REITs: These are a type of REIT that invests in the retail sector like shopping malls, grocery stores, supermarkets and so on. However, the REITs are not directly involved in running these retail outlets. They just rent out the space to retail tenants. Returns from these types of REITs will depend entirely on the state of the retail sector. So if there’s a retail boom, you know where to invest.
• Residential REITs: Residential REITs own and operate housing facilities like apartment buildings and gated communities. Considering the huge demand for residential property in India, this could be a possible growth area.
• Healthcare REITs: Like retail REITs, these invest in property for hospitals, medical centres, clinics and so on. Demand for healthcare services will always be growing in the future, so this kind of REIT represents a good investment opportunity.
• Office REITs: As the name suggests, this focuses on office properties and make their money from rental incomes