REIT

REIT stands for for Real Estate Investment Trust. REIT is a company that owns and mostly operates income producing real estate. In the budget of 2014, the Finance Minister Arun Jaitley introduced the law of setting up REITs in India.

Why do we need REIT?

In the real estate growth, the retail investor like us cannot participate in the growth. We cannot buy a large land and set up building on it and lease it to MNC’s. However, the REIT makes it possible to own a part of that business. The primary income is from the rents. Secondly if there is an appreciation in the land value. It increase the REIT’s Net Asset Value and vice versa. They need to reevaluate the land value at least once in a year.

There is a crux here. The trust can keep only 10% of the profit at maximum and rest must distributed to shareholders as dividends.

If you want to own land at the metropolitan cities but don’t have huge capital, it’s a way to own a small part, earn the rent and make gains on appreciation of the land value or loss on depreciation of the land value.

REIT concept is new in India and so we don’t have any past data to see the growth. There is only one listed REIT in the Indian exchange i.e. Embassy Office Parks. Further, because of the shift in Work From Home (WFM) culture, if companies stop to lease space, like Uber recently closed its office in Mumbai to save cost, there will be decrease in the earnings of such trust.

However, I don’t see WFH as a permanent culture as it becomes difficult for people to socialize. At the end of the day, we are humans and we run on emotions, hence we need physical interaction too. Office space is here to stay. May be companies start to decrease the leasing area, allowing more people to work from home.

Until then…

Disclaimer: This is not an investing advice.