What is REIT and How to Invest in India [2021 Guide]

Do you want to invest in real estate without worrying about the maintenance phone calls and the tension to collect rent every month?

THEN, you should invest in REIT or Real Estate Investment Trust.

Do you know?

In the US and other western countries, people are getting 18 to 25% return by investing in it.

BUT, in India, people are still not aware of this VERY LUCRATIVE investment opportunity.

In this guide, you’ll read what is REIT or Real Estate Investment Trust and how to invest in REIT in India.

SO, don’t miss this investment opportunity.

Read this guide till the end…


Disclosure: This post may contain affiliate links, which means we may receive a commission if you click a link and purchase something that we recommended. Read more about Affiliate disclosure here.


 

At the very first…

What is REIT or Real Estate Investment Trust

reit india

How nice if, you own a property, which doesn’t give you the tension of maintenance and rent collection?

Even how nice if, you could buy a fraction of this property if you don’t have enough money to invest in the whole asset?

And, with time, you could buy more parts of the property to pocket more profit?

And, whenever you want, you could sell your property immediately.

All the above benefits come with the asset class called REIT or real estate investment trust.

Note: Real estate is not a liquid asset. You have to search for a buyer to sell your property.

BUT, as REIT is listed in the stock market, you can sell it immediately just like stocks.

Let’s Have the Definition

As we can understand from the name, REIT or real estate investment trust is a kind of trust listed in STOCK MARKETS that owns, operates, or finances income-generating real estate.

There are 2 main income sources of REIT.

  • Renting out the properties
  • Selling the properties after appreciation

AS REITs are listed in the stock market, an individual investor can invest in REIT in the form of shareholding and get a steady income from dividends.

And of course, whenever he sells it, he can pocket the appreciation in capital invested.

Dividends can be distributed monthly, quarterly or yearly basis. It all depends on the REIT you select.

Each REIT has it’s own policies regarding dividends.

How to Invest in REIT in India

how to invest zerodha

Investing in a REIT is very easy.

The only tool you need to invest in REIT is a Demat Account.

HOWEVER, in most of the banks opening Demat account costs you 5 to 10 thousand rupees.

Don’t worry.

You don’t need that costly Demat account to invest in REIT or shares market.

ZERODHA is one of the biggest stockbrokers in India which provides the facility to open Demat Account with just 300 Rs.

And, all the process is online. SO, you won’t need to go anywhere to open Demat account with Zerodha.

Just fill the online form pay 300 Rs from a debit card, net banking, or UPI and send the required documents via courier.

Within 24 hours after receiving the courier, the will open your Demat account.

SO, first, open your Demat account with Zerodha.

When you have your Demat account opened, install Kite App in your mobile and login to it through your Zerodha account credentials.

There in the watchlist you have to search for EMBASSY.

zerodha kite dashboard

Embassy Office Parks is listed in both NSE and BSE.

You can buy its units directly from the Kite app.

After ordering, within a fraction of seconds, it will be showing on the orders section of the Kite app.

And the very next day it will be the part of your Portfolio.

It’s as simple as buying candy in a shop.

Right? 😊

Now, let’s go inside…

The Workflow of REIT

real estate investment trust

REIT collects the capital from individual investors through the stock market just like shareholding.

The only difference between REIT and ordinary share is we have to buy REIT shares in a lot.

Like, in India Embassy Office Parks is a REIT. You have to buy there share of above 200 units. You cannot buy below 200 units of share in it.

The lot is decided by SEBI in India.

SO, if the share price is 400 Rs, you have to invest 80,000 Rs to buy a lot.

BUT, when the price of share increases, SEBI reduces the units of a lot. This settlement makes it always in the reach of an ordinary investor.

How Dividend Calculated in REIT

The capital that a REIT company collects from individual investors through the share market is invested in buying properties.

It can be office space, shop, or residential property.

The property class is decided by the board of directors.

HOWEVER, history shows, REIT who owns office spaces pay more dividends than a REIT who owns a residential property.

In India, Embassy Office Parks is a REIT that invests in office spaces.

SO, they rent out their property and collect the rent.

Above 90% of the rent collected by the company is now divided with the number of total stocks and paid to the investors as per the number of stocks they own.

Let us understand it with an example.

A REIT has total 10,000,000 shares available for trading

If a given quarter the profit from rent is 2,00,00,00,000

SO, the Dividend per share will be approx…

20 Rs.

NOW, if you own 1000 shares then you’ll receive 20,000 Rs for the given quarter.

REIT VS Physical Property

reit vs physical property

In this section, we’ll compare REIT and physical property so that you could understand the pros and cons of buying it.

  • The first and foremost benefit of REIT is you can buy it with a fraction of the price you need to buy a physical property.
  • In REIT, the company manages all the rent and entrancement related tension where in a physical property you have to manage them yourself. (A big headache for physical property owners)
  • Investing in a REIT you can receive HASSLE-FREE monthly, quarterly, or yearly rent in the form of dividends. Where in the physical property you have to be dependent on the tenants to receive monthly rent.
  • The value of both REIT and the physical property appreciates with time. It’s the second type of income from both the assets.
  • The best thing of REIT is, HOWEVER, its a physical property BUT as listed in a stock market, it is more liquid than physical property. You can sell your units anytime you want. On the other hand, physical properties are not liquid. You need to search for a buyer to sell your physical property.
  • HOWEVER, there is one drawback of REIT is the dividend income is generally less than rent from physical property. BUT, if you calculate the overall profit cutting the maintenance charge of physical property, it would be approximately equal as REIT.

How Much You Can Earn Investing is a REIT

return on reit

That’s the most awaited question.

Right?

How much you can earn by investing in a REIT asset?

WELL, it depends on the REIT you choose and the market conditions as well.

First let’s talk about the type of REIT.

I have already mentioned above, there are 3 types of REIT available in the market.

  • REIT who owns office spaces
  • REIT who owns shops and shopping centers
  • REIT who owns residential properties and lands

Obviously, REITs who own office spaces gives more profit then other ones.

In India, Embassy Office Parks is the only REIT in which we can invest.

BUT, the best thing is, they own office spaces which are considered as the most lucrative investment option in the real estate sector.

According to trade analysts, generally, REIT who owns office spaces and shops gives 3 to 7% per quarter as dividends.

And, the additional profit comes from stock price appreciation which can be between 6 to 12% according to market conditions.

However, REIT stock price doesn’t drop much in a bear market.

The main reason is their own physical property which provides steady cash flow even in the bear market.

Do you know?

Even during the 2020 Corona Virus Pandemic, Embassy Office Parks gives 6 Rs per share to its shareholders.

Conclusion

The first thing is, I have already invested in Embassy Office Parks through Zerodha and enjoying the returns every quarter this REIT gives me as dividends.

I know the dividend and appreciation affect the market conditions but if we calculate the benefits for the long term I think it’s a good deal for us.

After all, I too want to enjoy having my own property BUT I also want more freedom in life which would never be possible by owning physical property.

Now, over to you…

I am inviting you to have a great discussion in the comment section.

And yes, don’t forget to share this article on social media if you think it’s beneficial for others.

Read also,

Gautam Roy is a recording engineer and a blogger from India. He loves music, writing and travelling. He is also an active investor and a successful entrepreneur.  

Leave a Comment