Rite, the bite-sized option on your real estate menu

Now, if you don’t want the huge commitment of investing a huge chunk of money in real estate, but still want to participate in the market, the best way to do it is through a real estate investment trust.rits) said Pankaj Kapur, Founder and Managing Director, LiaiseForce.

“Depending on the size, the minimum investment in real estate can be approx. ₹50-60 lakhs, but you can also invest in the sector through REITs ₹2 lakhs,” he said.

Explaining what real estate investment trusts are, Anuj Puri, chairman, ANAROCK Group, said, like mutual funds, rits Investment vehicles that own, operate and manage a portfolio of income-generating assets for regular returns.

As of now, REET-listed properties are largely commercial properties—mainly office spaces—that can generate stable and lucrative rental income. Re-listed office assets are very likely to be followed by other retail asset classes in India including retail malls, hotels, etc.

In order to ensure regular income to the investors, it has been mandated to distribute at least 90% of the net distributable cash flow to the investors at least twice a year.

Kapoor said the yield from REITs currently ranges between 8% and 9%, which is far better than any fixed deposit return.

While REITs are well established across the developed world, in India they are still nascent, and hence, the risk part is still unknown, said Harsh Rungta, Founder, Securities and Exchange Board of India (SEBI), a fee-only investment advisory LLP. said. )-registered investment advisory firm.

So, the pertinent question to ask is, is it a prudent decision to invest in REITs at this stage?

Rungta said that when considering any kind of investment, there are three parameters to consider: risk, returns and liquidity. As such, it is too early to predict what kind of risk it may face in the future. “I’m not saying it’s a bad risk, but it’s not fully known yet,” he said.

For REITs, the return aspect is also appropriately known, although they may change over time as rental contracts may be renegotiated.

The third part is liquidity. “Now, liquidity was an issue earlier. But once REITs become part of the broader index, the liquidity factor will improve significantly, Rungta said.

Keeping these factors in mind, it can easily be said that REITs can be considered as an efficient financial tool in India also in the times to come.

How are the gains from REITs taxed?

Gautam Nayak, Partner, CNK & Associates LLP said that investors can get three types of income from REITs- capital gains earned from sale of SPV (Special Purpose Vehicle) shares, interest from SPV and dividend from SPV.

And, here’s how investors should pay taxes for real estate investment trusts:

dividend income

The share of dividend is taxable in the hands of the unitholder only if the SPV paying dividend to REIT has opted for a concessional rate of tax of 22%. Otherwise, it is not taxable in the hands of the investor.

capital gain

An investor has to hold REITs for three years to qualify as a long-term capital asset, but only the long-term capital gains that an investor can make on the sale of REITs without cost indexation. Taxes are levied at 10%.

interest income

A unitholder has to pay tax on the interest income as per his tax slab. Elaborating further on SPVs, Nayak said that REIT investments are generally not done directly by trusts, but through SPVs (companies) through shares, interest bearing loans or debt instruments.

Who should invest in REITs?

Puri said that REIT is ideal for investors who want stable income with minimum risk, hence it is ideal for pensioners. Second, REITs is a good investment option for investors who want to diversify their portfolio beyond the gold and equity markets.

How has the pandemic affected REIT investments?

Real estate, especially commercial spaces, took a big hit during the pandemic, Kapoor pointed out. “Rental income declined and yields from REITs also declined; So many people lost money,” he said.

While it was a first order effect, Rungta said, “once people start going back to the office after vaccination, hopefully things will get better.”