Real estate has always been a desirable investment option. Primarily because it not only gives regular return as a return but also, its value appreciates over the period of time. In this article, we will try to find that what is the best way to Get Exposure to Real Estate in India in 2023 and with a very small amount.
Why people are very less exposed to real estate
Regardless of the positive facts mentioned, still, the majority of Indian middle-class people have not been able to succeed in investing mainly because of below reasons:
Big investment required
For investing in real estate, a big pile of money is required, mostly in Lakhs.
Getting trapped in the wrong property
People are afraid of investing in real estate because many times the infrastructure projects are not even completed and eventually investor’s money remains stuck.
Not getting fair returns after investment.
Sometimes even if the property is handed over to the investors, people do not get fair appreciation as well as a good rental yield.
Ability to switch the investment from one property to another
Since a big amount of cash is required for purchasing the property, hence it becomes really very tough task, if someone wants to switch his/her investment to some other instrument.
Liquidity of Investment
It takes a lot of time in selling the property, sometimes years as well. So, if someone has already invested in the property and he/she is in the need of some urgent money, either he/she will have to sell at a lesser price or will have to wait for a longer duration.
Legal paperwork required
While dealing with property-related stuff, people should be very well-versed in legal knowledge, or else he/she may fall prey to some scam.
The Best Way to invest in Real Estate
Considering all the above challenges of dealing with Real Estate, for the last couple of years in India there is a new way introduced for investing in Real Estate that’s REIT (Real Estate Investment Trust). So now let’s understand what is REIT.
What is REIT Real Estate Investment Trust?
REIT is a new concept in India. In this, there are few companies that have created their investment trusts. This trust is responsible for investing in commercial properties in India and putting those on rent. Finally, that rent is shared with investors. Investors can simply buy units of these trusts at their discretion and whenever they want they can dilute their investment just by selling the units. Let’s understand it in more detail.
It is mandated by governing authority that
- In whichever property trust is investing, at least 80% of its total investment must go into ready-to-move-in commercial properties. So that these properties can be rented further.
- REITs must share 90% rental amount with investors at least twice a year.
This rent is shared by giving dividends to investors.
How to invest in REIT?
Now the big question is how can someone invest in REIT. Actually, it’s very simple. Since India is an emerging market for this hence right now there are only 3 companies that have created REITs. Those are:
- Brookfield India Real Estate Trust Ltd.
- Embassy Office Parks REIT Ltd.
- Mindspace Business Parks REIT Ltd.
Investors just simply need to purchase units of any desired REIT using their Demat or trading account just like other equities. Its price is called NAV. There are two ways of investing in REITs.
Buying REIT units
Just like stocks, investors can buy REIT Units using trading and demat accounts. And whenever they want, it can be sold in a similar manner.
REIT Mutual funds
There are a few mutual fund houses, that have introduced mutual funds having REITs in their portfolio. Investors can simply buy units of these mutual funds just like other mutual funds.
How to choose The Best REIT?
As mentioned above there are only 3 options in the Indian market. But before choosing 1 of them one should consider the following points:
All Properties currently owned by REIT
Whether the property is having good rental yield.
Whether that area will have price appreciation.
Is there any big investor?
Who are the clients of that REIT?
Although the best way to invest in REIT could be to choose any 2 or all 3 REITs and purchase their units every month, just like we do while buying a SIP of mutual funds. So that we can average out any performance glitches happening with anyone.
Advantages of investing in REIT
There are many advantages of investing in REITs:
Ownership
You become a virtual owner of the property just by buying a single unit of any REIT.
Paperwork hassle
There is no paperwork or legal hassle to be borne by you, everything will be taken care of by the investment trust.
Administration Hassle
No admin hassle to be borne by you, like finding a tenant, getting the rent, or any repair work to be done. Everything will be done by the investment trust.
Fair return
You get a fair dividend (rent) at least twice a year, also the NAV rate will appreciate, so your investment value is also increasing.
Liquidity of investment
The best part of this investment is you can sell your units whenever you want. So your whole investment is in liquid form.
Disadvantages of investing in REIT
It is a fairly new concept in India, although investors should not be worried about it, since it comes under SEBI.
Conclusion – Should we consider REIT for investment?
Since now, we have explored all ifs and buts of this new investment option, the big question is should we consider it or not?
The answer to this question is, it depends, i.e. if you have some surplus money and want some new diversification in your portfolio, you can consider this. But if you have just started your investment journey then I would say, you should stay away for now from this.
If you are a beginner in investing, you should first cover your basics. Read this article here for an understanding of investment basics.
If you have made it up to this point, I would like to say a big thank you :). Happy investing and have a good life.
Disclaimer – After reading this article, you must put your thoughts before any investment in any instrument.