InVITs And REITs: Retail Investor's Entry Into Commercial Real Estate

InVITs And REITs: Retail Investor's Entry Into Commercial Real Estate

Investment instruments known as REITs and InvITs enable investors to invest in publicly traded companies that oversee commercial real estate properties and infrastructure.

G R MukeshUpdated: Monday, June 24, 2024, 03:37 PM IST
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Investment instruments known as REITs and InvITs enable investors to invest in publicly traded companies that oversee commercial real estate properties and infrastructure. These companies are listed on stock exchanges and are subject to public trading.

InvITs, a new category of investment options, were introduced in India back in 2014 (announced by SEBI). Unlike REITs, which manage commercial properties, InvITs are primarily focused on infrastructure projects, such as power plants, tunnels, bridges, and roads.

These publicly traded companies function similarly to mutual funds for the infrastructure sector, and if they perform well, they will regularly distribute dividends to their investors.

REITs and InvITs: What are they?

REITs

Real Estate Investment Trusts (REITs) are businesses that finance, acquire, or manage commercial real estate with the potential to produce income. Since you can register on stock exchanges, it is a legal method of investing in the real estate market.

Although the Securities and Exchange Board of India (SEBI) developed the concept of a REIT in 2008, 'The Embassy Office Parks', India's first REIT, did not raise its Initial Public Offering (IPO) until 2019. Among the best examples of REITs are shopping centers, hotels, co-working spaces, hospitals, and malls.

InvITs

Investors can pool their funds and hold income-producing assets in the infrastructure sector through 'Infrastructure Investment Trusts' (InvITs).

Among the most notable examples of InvITs are roads, highways, power and gas pipelines, energy projects, and so forth. Among the registered InvITs are IndiGrid and IRB.

Categories of InvITs and REITs

REITs and InvITs differ significantly from one another. Three general categories are used to classify REITs: equity, mortgage (mREITs), and hybrid REITs.

Income-producing commercial projects are owned, managed, and rented out by Equity REIT companies, whereas mREITs finance income-producing projects. Conversely, hybrid real estate investment trusts (REITs) make money from both rent and interest on mortgage loans.

The Infrastructure Investment Trusts are divided into two categories: completed projects and projects that are still under construction, based on the types of projects.

The former group includes businesses that use initial public offerings (IPOs) to finance finished infrastructure projects. In contrast, investments in the latter are made through private companies.

Investing in real estate can be simple and hassle-free with REITs and InvITs. Without having to pay the high expenses associated with becoming real estate owners, investors can profit from the increase in real estate assets. Similar to owning real estate in a demat account.

Retail investors are drawn to InvITs and REITs. Additionally, just like debt funds, REITs must give a large chunk of their profits back to investors. This means that they can be a dependable source of consistent income.

(Investments are subject to market risk; please read all scheme-related documents carefully.)

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