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Real estate has long been a favoured investment in India for wealth creation, offering opportunities for rental income and long-term growth. However, the way we invest in real estate is evolving.
With the rise of REITs, real estate mutual funds, and fractional ownership, modern investors now have flexible, low-barrier entry points to tap into this asset class, without the challenges of physical ownership.
This guide breaks down how to invest in real estate in India be it through the traditional routes or SEBI-regulated REITs, and how to align each option with your financial goals.
What are REITs (Real Estate Investment Trusts)?
REITs are a modern way to invest in real estate without the complexities of direct property ownership.
A REIT is a company that owns, operates, or finances income-generating real estate. They pool funds from investors to buy and manage these properties. They are like mutual funds but for real estate.
REITs follow a structured model, typically categorised as:
- Equity REITs (owning properties).
- Mortgage REITs (lending money for real estate).
- Hybrid REITs (a mix of both).
How REITs Work in India
In India, REITs are listed on NSE/BSE, making them accessible like stocks. Just like mutual funds, they allow you to invest indirectly in real estate and earn returns through rental income and property appreciation.
SEBI Regulations for REITs
The Securities and Exchange Board of India (SEBI) regulates REITs to ensure transparency and protect investors.
SEBI requires REITs to be listed on stock exchanges, maintain at least 80% of their assets in income-generating real estate, and distribute at least 90% of their net income to investors as dividends.
REIT Examples Listed in India
Several REITs in India are actively traded. For example, Indian REITs include Embassy Office Parks REIT and Mindspace REIT. They offer a convenient way to diversify your portfolio while having the potential to earn dividend-like income from commercial properties..
How to Invest in Real Estate and Real Estate Investment Trusts in India
Investing in physical property requires careful planning and research. Here’s how to invest in REITs in India:
- Identify Your Budget and Investment Goal: Are you looking for passive rental income, capital appreciation, or tax-advantaged investing? This helps decide whether you should buy property, invest in REITs, or choose real estate mutual funds.
- Research Market Trends and Locations: For physical property, research local market trends and upcoming infrastructure projects to make informed investment decisions. If considering REITs or other market-linked real estate products, understand the underlying assets and market outlook.
- Legal and Regulatory Checks: Verify all legal documents and property titles carefully to avoid any legal issues. Proper research ensures a safe and hassle-free investment.
- Choose Between Under-Construction and Ready-possession: Both options have their own advantages. Under-construction properties may offer lower prices, while ready-possession properties provide immediate returns. Your choice should reflect your risk appetite and income needs, especially if you are considering investing in real estate for passive income.
- Evaluate Rental Yield and Future Appreciation: Calculate potential rental yields and assess future market value. This analysis is important when comparing different investment opportunities and understanding the full picture.
- Work with Reputed Builders or Property Consultants: For physical property, engaging experienced professionals can save you time and offer valuable guidance on local investments.
How to Start Investing in Real Estate Invest Trusts and Realty Funds?
Real Estate Mutual Funds (including REIT Fund of Funds) can offer the convenience of SIPs, professional management, and diversified access to real estate assets. Investing in REITs is simple.
REITs are listed on the NSE/BSE. Open a trading account, choose a REIT, and invest. Monitor REITs regularly to assess performance and adjust your investment strategy.
Unlike physical properties, REITs offer liquidity, allowing easy buying and selling. Research different REITs, understand their asset holdings, and track their performance. This can help you make informed decisions.
Conclusion
Real estate can be an avenue for long-term growth potential, and investment methods now extend beyond directly buying flats or plots.. With options like REITs and real estate mutual funds, investors can access the real estate sector without the direct burdens of physical property management, extensive individual property documentation, or the typical illiquidity associated with direct real estate.
Whether you’re exploring REITs, real estate-focused mutual funds, or other avenues for real estate exposure to seek potential passive income or long-term growth, it’s important to find an approach that aligns with your financial goals.
FAQs
REITs are regulated by SEBI, are traded on stock exchanges (offering greater liquidity than physical property), and typically hold a diversified portfolio of assets. These factors may contribute to a different risk profile compared to owning a single physical property. However, REITs are still subject to market fluctuations and the economic risks affecting the real estate sector.
The minimum investment in a REIT in the secondary market is the price of one unit, which varies per REIT. During an Initial Public Offering (IPO), REITs have a minimum subscription lot size, which has historically been in the range of ₹10,000–₹15,000.
Returns from REITs in India are variable and depend on factors such as the performance of their underlying assets, rental income, occupancy rates, and overall market conditions. Historical performance of Indian REITs has varied (6% to 39%); investors should look at individual REIT disclosures and understand that past performance is not indicative of future returns. It’s advisable to review the offer documents and consult a financial advisor.
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