What is a REIT?

By Morningstar |  07-07-20 | 

REITs are an acronym for real estate investment trusts.

They own or operate real estate properties that generate income. So this would typically include malls, retail outlets, warehouses, distribution centres, healthcare facilities, commercial offices, apartment buildings and hotels.

REITs trade on the stock exchange and provide a low entry point for investors in the real estate sector. You may not be able to afford a property, but you can afford to invest in a REIT.

It offers diversification to a portfolio of equity and fixed income instruments.

Real estate also has a built-in inflation hedge.

The Securities and Exchange Board of India, or SEBI, first issued the REIT regulations in 2014, which were then revised in 2016 and 2017. The Blackstone Group-backed Embassy Office Parks REIT was India’s first that focussed entirely on a few Tier-I cities. Currently, it is Bengaluru, Mumbai, NCR and Pune.

According to data from ANAROCK Capital, as on August 2019, the U.S. REITs market capitalization was 96% of the real estate market while in Singapore and Japan, it was 55% and 51%, respectively. In comparison, in India it was only 17%.

From its inception in April 2019 leading up to June 25, 2020, Embassy Office Parks REIT has yielded a return of 14%, the BSE Realty Index yielded negative returns of (-)20% over the same period.

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