Real estate investing has been an important part of financial planning for generations. However, due to its comparatively low returns and its liquidity in recent times, many new age investors are moving away from it.
REITs has come up with a great opportunity for such investors to invest in the real estate category.
REITs are mutual funds-like products through which investors can own income-generating assets such as commercial buildings and office spaces, which they cannot otherwise invest in. “For example, the investor may not have the ability to invest. ₹50 lakh in a space, he can still invest in the category through REITs,” said Pankaj Kapoor, Founder and Managing Director, Liasis Force. Also, the liquidity factor is excellent.
Though it is a popular form of investment globally, it is still nascent in India. “So, the risk thus far is still unknown,” said Harsh Rungta, founder, Fee Only Investment Advisors LLP, a SEBI registered investment advisory firm.
If you are planning to invest in REITs then you should keep these two things in mind:
Rental income has been affected due to the pandemic: REITs is highly dependent on rental income. As such, residential spaces are low yielding assets, on the other hand, commercial spaces provide around 8% return, which is much better than FD returns, said Kapoor.
“But there are also risks. All investments are susceptible to macroeconomic factors. During the pandemic, many commercial offices were evacuated, office space was reduced. This has affected rental income and reduced returns. “
Do not take direct exposure in REITs: One should invest in REITs through index funds or a small portion of mutual funds and should not make direct investments in REITs. Rungta said that taking direct risk, especially since liquidity is yet to be proven, is not justified.
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