Real Estate Investment Trusts (REITs): Structure, benefits, and risks associated with this investment option

Real Estate Investment Trusts (REITs) provide investors with a unique way to access the real estate sector, offering diversity, dividend potential, and liquidity. They allow small investors to obtain exposure to a diversified portfolio, managed by experts. REITs also offer instant liquidity and regulatory oversight. 

“Their regulated structure, which offers diversity, dividend potential, and liquidity, allows them to be an appealing investment choice,” said Suren Goyal, partner, RPS Group.

However, before investing in a certain REIT, investors need to be cautious about the dangers involved and undertake extensive research. 

Diversification serves as one of the primary advantages of making investments in REITs. 

“REITs allow small investors to obtain exposure to a diversified portfolio that is handled by experts in the field. This diversity helps limit the potential risks of investing in a single property or a certain area of the real estate sector. Furthermore, because they are listed on stock exchanges, REITs frequently provide liquidity, allowing investors to readily acquire and sell shares,” said Subhash Goel, Director of Goel Ganga Developments.

REITs operate on a model similar to mutual funds, allowing investors to own a portion of income-generating real estate properties that would otherwise be unaffordable

“Since their introduction in the Indian market in 2019, REITs have gained popularity as publicly listed investments regulated by the Securities and Exchange Board of India (SEBI). Investing in REITs provides several advantages, including instant liquidity, affordability, safety through regulatory oversight, tax benefits, and the ability to diversify real estate holdings across multiple locations,” said Sunil Sisodiya, Founder, Geetanjali Homestate. 

“REITs have garnered market approval. They offer a regular income stream through dividends, distributing at least 90% of their profits, which are also tax-free,” said Siraj Saiyed, Director, Arete Group.

However, investors should conduct thorough research and evaluate factors such as occupancy, tenant quality, and past performance. Despite challenges, REITs have shown resilience and high rental collections during the pandemic.