Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) were launched in India in 2014. Since these instruments are relatively new to the Indian investing environment, there is much doubt about their effectiveness and benefits. Furthermore, the Securities and Exchange Board of India (SEBI) regulates these investment schemes. This article highlights the difference between REIT and InvIT in detail.
What are REITs?
A Real Estate Investment Trust (REIT) is a type of financial vehicle that owns and manages properties that generate regular income. They are similar to mutual funds. The main objective of REITs is to create regular income and capital appreciation. It invests across real estate facilities such as industrial parks, offices, warehouses, hospitality centres, malls, healthcare centres, etc.
REITs pool money from investors by providing them with an easy entry point into the real estate market. They are also an excellent diversifying option for your investment portfolio that offers both regular income and long-term capital appreciation. Furthermore, REITs can be listed on the stock exchange.
What are InvITs?
Infrastructure Investment Trust (InvITs) is a trust that pools money from investors to invest in income-generating assets. The main focus of InvITs is to cash flow over a period of time. They are similar to REITs except that they invest in infrastructure projects such as roadways, transmissions, power plants and other development projects that require time to generate consistent cash flow. Furthermore, they aim to provide a steady stream of income (through dividends) as well as long-term capital appreciation.
Difference Between REIT and InVIT
The following table summarises the difference between REIT and InVIT:
|Basis of Difference||REITs||InVITs|
|Investment Objective||REITs focus on making real estate assets more accessible to individual investors and increasing retail participation.||InvITs focus on making infrastructure investments more accessible to private investors and expanding retail participation in the sector.|
|Investment Avenue||REITs invest in properties like warehouses, apartments, corporate offices, data centres, shopping malls, etc.,||InvITs invest across infrastructure projects like transmission, roadways, environmental and renewable projects, etc.|
|Minimum Investment Amount||The minimum subscription amount for REITs is INR 10,000 – 15,000. Earlier it was INR 50,000.||The minimum subscription amount for InvITs is INR 10,000 – 15,000. Earlier it was INT 1,00,000.|
|Income||REITs offer highly stable income. Since they invest in commercial real estate with long-term leases, 80% of REIT assets are invested in income-generating (rental) properties. The long-term contract assures that the REIT receives rent consistently.||InvITs also offer stable income. They invest more than 80% of their assets in operational and revenue-generating infrastructure with long-term contracts. Though they offer stability, the income depends on various circumstances, including tariff constraints, project deadlines, etc. Thus, in comparison to REITs, this is a less stable investment.|
|Risks||Since REITs own their real estate through long-term leases or freehold ownership, they are safe from political and regulatory threats. Furthermore, as REITs serve corporate clients, they face less political and regulatory risk.||Numerous InvITs invest in sectors associated with public welfare (Highways and Utilities), and any delay in regulatory approvals or regulatory changes could risk the infrastructure project. Additionally, any protests by environmentalists against road building or other such issues could risk the revenue generated by the infrastructure project in which InvIT has invested.|
|Liquidity||Lower unit pricing and smaller minimum trading quantities make REITs more liquid.||Large trading lot size and higher unit price of InvITs, make them less liquid.|
|Investor Participation and Knowledge||Most investors are familiar with the real estate business; thus, retail investor participation is significant. Also, the future prospects look bright.||Retail investors may be hesitant to engage in InvITs due to their lack of expertise in the infrastructure sector. It may take time for investors to participate in InvITs actively.|
|Ownership||REITs either own the property or lease it on a long-term basis.||InvITs invest in infrastructure projects that are given back to the authority on completion or rebid once the contract period has expired.|
|Growth Prospects||REITs have a greater potential for growth due to their ability to remodel current properties, build new ones, and acquire completed/leased assets. REITs can also periodically adjust rents to keep pace with rising market expenses, allowing them to receive a bigger percentage of rental revenue.||InvIT can only grow if it can acquire projects at lower bids. Additionally, revenue increases when the infrastructure asset generates more money than anticipated. This could result in a significant monetary gain for InvIT in the stock market. For instance, a highway project may generate high toll revenue because the traffic is more than anticipated.|
|Regulations||REITs must follow the SEBI Real Estate Investment Trust Regulations, 2014.||InvITs must follow the SEBI Infrastructure Investment Trust Regulations, 2014.|
REIT vs InvIT – Which is Better?
REITs and InvITs are a hassle-free and straightforward way of investing in real estate. You can benefit from the growth of real estate assets without incurring the high costs of acquiring real estate ownership. Simply put, it is like holding real estate in your demat.
InvITs and REITs are attractive to retail investors, HNIs and also retired individuals who are looking for a steady source of income. Moreover, REITs are obligated to distribute the majority of their revenues to investors, and they can serve as a reliable source of steady income, similar to debt funds.
Choosing between the two largely depends on your investment objective and risk tolerance levels. To elaborate, REITs are more liquid since they have lower unit prices and small trading quantities. While InvITs are slightly less liquid than REITs. Furthermore, InvITs are more prone to political and regulatory risks than REITs. Thus, REITs are slightly safer investment options for investors.
REIT or InvIT, remember to analyze them using ratings from independent agencies that score these trusts based on the quality of their assets, cash flows, and other aspects. Additionally, because these investment vehicles are more complicated to grasp than typical mutual funds, you should get expert advice prior to making an investment decision.