Teji Mandi Explains: Should you bet on real estate or REITs?

Employees are returning to their workplace, and with that, the demand for commercial real estate is flourishing. Not everyone has an enormous wealth to invest in the realty market, so should you invest in REIT instead?

Teji MandiUpdated:Tuesday, May 10, 2022, 04:35 PM IST
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Teji Mandi Explains: Should you bet on real estate or REITs? | Unsplash

What’s Happening?

Real estate appreciates in value over time, and it’s a well-known fact, but not everyone invests in the commercial realty market. Commercial assets are often far more expensive and difficult to handle. The owner has to fix leaky roofs, slow elevators and whatnot. In case you need urgent cash, you cannot sell the property immediately. The sale takes months since there are fewer buyers for commercial properties. Hence, market participants are now shifting their focus towards REITs (real estate investment trusts).

REITs are an investment pool where retail investors pool money to invest in commercial assets. REITs are gaining prominence as workplaces restart, and one also doesn’t need significant wealth to invest in commercial assets. Analysts are more optimistic about the commercial space because India is the most affordable market for skilled labour. Plus, the real estate sector is cheap in India.

Should Investors Be Worried?

According to Cushman and Wakefield, 2022 has started on a bright note for the commercial real estate space. REITs are seen as a better bet than residential realty names, given the recall of employees to offices. Another point to note is that many small businesses and startups boomed during the pandemic. These businesses require office space, and hence it is said that commercial real estate is a brewing new space.

What Lies Ahead?

Look for new REITs compared to the existing ones as they will capture higher rental yields. Overall, REITs are seen as a great investment opportunity in the coming years.

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