REIT Investment Benefits

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Advantages of Investing in REITs

The unique characteristics and features of each REIT, such as its portfolio of assets and focus on generating income as regularly as possible, can translate into benefits for investors.

Diversification: REITs typically own multi-property portfolios with diversified tenant pools. This reduces the risk of relying on a single property and tenant which you face when you directly own a real estate property. For example, if the MRT station next to your apartment closes down, its value would probably fall. The impact of such “stand-alone” risk is diluted when you invest in a pool of properties through a REIT.

You could diversify further by selecting REITs based on the type of properties or region you want to …show more content…

Do not simply look at the expected yield, but also consider the concentration, quality and lease length of the underlying properties.

Some of the risks associated with investing in REITs include:

Market Risk: REITs are traded on the stock exchange and the prices are subject to demand and supply conditions, just like other stocks. Investors could receive less than the original investment amount when they sell their units in a REIT. The prices generally reflect investors’ confidence in the economy, the property market and its returns, the REIT management, interest rates, and many other factors. Like other stocks, investors must be able to tolerate such price movements.

Income Risk: Dividends may not be paid if a REIT reports an operating loss. For example, tenancy agreements of the underlying properties could be renewed at a lower rental rate than the previous agreement or the occupancy rate could fall. You should consider whether the REIT has taken any measures such as procuring payment upfront or contractual lock-ins of rental rates and other clauses in tenancy agreements. Similarly, if the underlying properties are financed by debts, there is a refinancing risk when cost of debt varies. A higher cost of debt may also reduce the income …show more content…

• May or may not be through S.P.V.
• If through REIT, needs to be holding controlling interest and not less than 50% equity.
• Also hold 80% equity in the REIT asset.
 Dividend Distribution: o Mandatory distribution of at least 90% off net distributable cash flows .Also at least 90% of proceeds from assets.
 Foreign Investments: o Foreign investment is permitted; NRIs & FPIs can also invest. o Downstream investments by REITs also considered as foreign investment, if the sponsor or manager is not an Indian.
 Valuation Requirement : o Mandatory valuation on a yearly basis on all REIT assets. o Any acquisition / transfer needs to be stated.
 Listing Requirement: o REITs are required to be raising through IPOs & subsequently through follow on offers and right issues. o Detailed disclosure o REIT units have to be dematerialized & mandatory listed in recognized stock exchanges until

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