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Everything You Must Know On REITs Research Team | Posted On Tuesday, January 23,2018, 07:34 PM

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Everything You Must Know On REITs



Real Estate Investment Trusts are popularly called REITs. REITs are similar to mutual funds and they are governed by the capital market regulator, Securities and Exchange Board of India (SEBI).  Unlike mutual funds, REITs do not invest in stocks or bonds. REITs invest in revenue generating commercial properties (real estate).

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Everything You Must Know On REITs

1. How do REITs work?

REITs collect money from you and other investors and invest the money in profitable real estate properties like offices, hotels, residential units, warehouses, shopping centers and so on.

Like other securities, REITs are also listed on a reputed stock exchange and investors can buy units in the trust.  REITs assets will be held with independent trustees on behalf of unit holders/investors.

2. What is the role of the trustee?

REIT trustees must follow certain rules and guidelines.  They should ensure compliance with applicable laws and protect the rights of unit holders.

3. Take a look at the objectives of REITs

The main objective of investing in REITs is to provide dividends to the investors, that are generated in the form of rental income and capital gains from the sale of real estate assets.

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Usually, the trust distributes 90% of its income among investors through dividends.

4. Types of REITs

  • Equity REITs:

Equity REITs own large hotels, apartments, commercial buildings and retail stores. They are responsible for acquiring, managing, building, renovating and selling these properties.

The income earned by giving these buildings on lease and rental income will be paid to investors as dividends.

  • Mortgage REITs:

Mortgage REITs do not own the properties themselves. Instead, they lend the money to real estate owners and their operators. The revenue is generated in the form of interest paid by real estate owners on the mortgage loans. This income will be distributed to investors via dividends.

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5. Where do REITs invest your money?

REITs invest at least 80% of your money in completed revenue generating commercial properties. The remaining 20% is invested in Commercial properties under development, equity shares that derive a minimum of 75% of income from Government securities and Money market instruments.

6. Tax on REITs

Dividends from REITs are not taxable in the hands of the company. Tax paid on other securities at the corporate level, could be as high as 35%. As REITs save 35% tax at the corporate level, shareholders will get extra dividends. Shareholders are required to pay 15% to 20% tax depending on the tax bracket.

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7. Advantages of REITs

1. Stable Income

The trust distributes 90% of the income among its investors through dividends. Dividend will be distributed twice a year.

2. Transparency

Investments in REIT are transparent as full valuations are disclosed on a yearly basis. Be Wise, Get Rich.

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