The REIT mode to invest in property

With banks lowering housing loan rates and RBI signaling a downhill fashion in property prices, investors have a cause to smile. After all, they can now go ahead and buy that, in demand piece of property, feeling a little less culpable about not making the investment when rates were much lesser.

For all those who cannot still make a decision if or when to press the play button, there would soon be pools of money like mutual funds, called real estate investment trusts (REITs), to invest in.

REITs invest in properties and earn rental income from them, besides the appreciation in the property rate itself. They could be rolled out by either real estate players who have large rental assets, or by mutual fund houses. The income brought in as rent is given out as dividends.

The properties would be assessed at regular intervals and accordingly, the net asset value (NAV) arrived at, much like in mutual funds. The NAV, however, would not be declared daily, but annually.

The REIT corpus would go into together commercial and residential property. It may also spread the risk into urban, semi-urban and even rural land, thus curbing losses, if any.
Lease or rental agreements on commercial properties are usually spread over several years. As a result, REITs would also have a lock-in of a few years.

In the meanwhile, if you are in need of cash and wish to exit, you would have an option to sell the units. This cannot be sold to the REIT issuer as the money has to grow. But, REITs would be listed on the exchanges and units can be sold there.

SEBI has also issued guidelines for dedicated infrastructure funds, which would be seven-year closed ended funds investing in infrastructure projects. These funds, too, would be listed and would have a Rs1 lakh tax exemption over and above the usual Rs1 lakh of exemption under Section 80 (C).

Ved Prakash Arya, managing director of Milestone Capital Advisors Pvt Ltd, says, “Globally, REIT is the most sought after platform for investment in real estate market by retail households. I expect the same to happen in India as well. Another big benefit of REIT is that it will bring in a very transparent valuation mechanism and will also help remove other anomalies like cash transaction and arbitrary pricing prevailing across the country.”

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  1. […] fund, which will be focused on offices and residential. Old Mutual will also set up a REIT once the government puts in the guidelines in place in the next one year, which will access local […]

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