InvestorQ : What is the advantage of investing in real estate investment trusts (REITs)?
Priyanka Singh made post

What is the advantage of investing in real estate investment trusts (REITs)?

Samita Patil answered.
2 years ago

A real estate investment trust (REIT) is a company that buys real estate to generate regular and lucrative returns for its investors. Through REITs, small investors can invest in the otherwise expensive realty market.

Advantages of investing in REITs are:

Handsome income dividends: REITs distribute 90% of income generated at least twice a year

Transparent investing: REITs show the full valuation on a yearly basis and will also update it on a half-yearly basis

Diversification: Conforming with SEBI guidelines, REITs have to invest in a minimum of two projects with 60% asset value in a single project

Relatively low risk: At least 80% of a REIT’s assets have to be invested in revenue-generating and completed projects. The remaining 20% of the properties that include properties like under construction projects, equity shares of the listed properties, mortgage- based securities, equity shares that derive a minimum of 75% of income from Government securities or G-secs, money market instruments, cash equivalents and real estate activities.

Most of REITs relatively-stringent eligibility criteria make it a good investment option: A few of these are:

- The REIT must have at least 100 shareholders

- At least 75% of assets must be invested in real estate, cash, or Treasuries

- 75% of gross income must be derived from real estate

- No five shareholders can own more than 50% of the shares.

- 90% of income generated must be distributed as dividend to the investors

- 80% of investment must be in properties that generate revenue

- Only 10% of the total investment must be in real estate under-construction

- The company must have an asset base of Rs 500 crore

- NAV of the REIT must be updated twice in each financial year