What are Real Estate Investment Trusts (REITs)?
MAS Team | 03 November 2017
Share
4
‘Real Estate Investment Trusts’ are an investment-vehicle which invest in rent-yielding completed commercial real estate projects. The idea behind REITs is to convert commercial properties like malls, offices etc. into affordable mutual fund-like units, and to provide the investors regular income collected through rent and sale receipts of these properties.
The main purpose of REITs is to generate regular income better than fixed income or debt products which offer 7%-8% returns annually. The US Congress created the Real Estate Investment Trust (US-REIT) in 1960 to make large-scale, income-producing real estate investments accessible to smaller investors. Since then, the market capitalization grew from $1.49 BN in 1971 to $1 Trillion in 2016, growing 66-fold in the 36 years. RETIs is simply mutual funds for real estate. This means that the success of REITs in India may help boost the real estate sector and will eventually provide an opportunity to investors to participate in real estate growth through small ticket sizes. At the moment they have to buy whole units on their own.
FAQs;
1. Are REITs an alternative to buying Real Estate in India?
Ans. No, REITs are not similar to owning a self-owned property but can be compared to a close-ended debt mutual fund invested for the purpose of earning regular income.
2. Who can invest in REITs?
A. Initially, retail participants won’t get access to REITs as only big-ticket foreign portfolio investors, HNIs and mutual funds will be allowed. As the market matures, we might see low-ticket entry for retail investors as well.
3. Are dividends received taxed?
A. REITs have been given a pass-through status for this, and do not need to pay Dividend Distribution Tax; therefore, all dividends will be tax-free.
4. Will REITs beat returns of equity schemes?
A. Most likely not because earnings generated by well-run companies that gets passed on to investors through capital gains and dividend will be more than that generated from real estate. REIT returns will most likely be better than the returns from bank fixed deposits or debt mutual funds.
5. How much can one invest in a REIT fund?
A. Minimum subscription amount upon public offer, per investor is Rs2 lakhs. Minimum unit size and trading lot size is Rs1 lakh.
6. Who are the participants in a REIT?
A. Sponsor- usually a reputed real-estate builder, who is required to hold a certain percentage of the units of the trust at all times. The sponsor is the settlor of the trust.
Trustee- Entrusted with the responsibilities of holding the properties on behalf of the investors.
Fund Manager -takes care of operations related to the objectives of the Trust.
Special Purpose Vehicle (SPV) – These are LLP companies which hold the real-estate assets and pay interest to the Trust.
Investor- who subscribes to the public offer of REITs, earns interest and dividends, and can sell his/her holdings which are in demat form on a recognized stock exchange.
7. What about taxes?
On Interest earned: The interest shall be taxed under Interest income by the unit holder. Also, TDS at the rate of 10% will be deducted before payment to the investor. NRIs will be charged 5% TDS.
On Dividend: DDT is not applicable to both, the REIT and the unit holder, which makes the dividends tax free.
When you sell the units on a stock exchange: Securities Transaction Tax @ 0.125% will be payable. Long term capital gains arising will be tax exempt and short term capital gains will be taxed at 15%.
Dear Investor,
In case of any grievance / complaint :
In case of any grievance / complaint :
- Please contact Compliance Officer Pankaj Raheja at [email protected] and Phone No. - 91-22-35131664.
- You may also approach CEO Debashis Basu at email- id [email protected] and Phone No. - 91-22-35131664.
