Property or real estate is always an animated and exciting conversation. You often talk about property prices in various cities in the country with friends and wish you could benefit from the rise.

You may soon be able to do that.

The Securities and Exchange Board of India, India’s capital market regulator, will allow Real Estate Investment Trusts (REITs) in India.

These let you invest indirectly invest in commercial or large properties just like a mutual fund which lets you own stocks. A professional fund manager manages a pool of money thus gathered. The fund manager buys or sells properties on your behalf.

You get the benefit of the market movement in prices through your unit holding.

Five years after it released draft regulations for REITs, the regulator has put out a consultative paper seeking feedback on Real Estate Investment Trusts after which it will formalize regulations and allow the launch of these real estate investment vehicles.

What are Real Estate Investment Trusts or REITs?

Simply put, a REIT is an investment fund that invests in real estate. Wikipedia defines REIT as “a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. “

REIT as an investment vehicle

The idea of a REIT is to provide investors with an opportunity to invest in large-scale and diversified real estate that earns them returns the same way, as investors would invest in other asset classes via liquid securities.

A REIT works for an investor like a mutual fund. Just like when investing in mutual funds you do not have to own stocks similarly when investing in REITs you do not need to own property, you simply invest in the REIT.

A REIT provides avenue for investment in property that is not easy for an ordinary investor. REITs allow us invest in commercial estate like office complex, malls and hospitals etc. which for most investors is unaffordable.

Transparency and Accountability

REITs will bring in transparency and accountability in the real estate sector.

SEBI was hesitant to launch REIT’s in India in 2008 because of the inconsistencies in the valuation of properties in the country, making it impossible to fairly price property in which REITs can invest.

The regulator has now proposed a full assessment including a physical inspection of the properties once in a year and will be updated every six-months. And the net asset value of REIT units will be declared at least twice a year. This will ensure transparency and will value underlying assets of REITs correctly.

Investors will benefit, as REITs are comparatively less risky than investing in under-construction properties. They also provide regular income.

For developers, REITs are positive as they provide the sponsor — developer or a private equity fund an option of exit as a result providing liquidity and enable them to invest in other projects.

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