ABOUT REITS

REITs in India

India is a relatively new market for real estate investment trusts, and in 2007 SEBI (the country's securities exchange board) approved the first regulations. In India, the current SEBI REIT guidelines were established in September 2014.

There are just 3 REITs now available in India for investment: Brookfield India Real Estate Trust, Mindspace Business Parks REIT, and Embassy Office Parks REIT. Future REIT introductions from other well-known players in the real estate industry, such DLF and Godrej, are also anticipated.

A REIT has a three-tiered structure in India, with a Sponsor, Manager, and Trustee, each of whom is in charge of significant duties on the Trust's behalf. According to SEBI, they are primarily responsible for the following things:

• Sponsor – Typically, this refers to a real estate firm that was the original owner of the properties before the REIT was founded. For instance, BSREP India Office Holdings V Pte is the sponsor of the Brookfield REIT. Ltd., a division of US-based Brookfield Assets Management Inc. The responsibility for creating the REIT and choosing the Trustee belongs to the Sponsor. For the first three years following the formation of a REIT, the REIT Sponsor and the sponsor group are also legally obligated to hold 25% of the units. The sponsor equity may be reduced to 15% of all outstanding REIT units after three years have passed.

• Manager – A company that specializes in facilities management is often a REIT Manager. For instance, Brookprop Management Services Pvt. Ltd. has been named manager in the Brookfield REIT case. accountable for the REIT's asset management, investment choices, and timely reporting and disclosure requirements.

• Trustee – Companies that specialize in offering trusteeship services are often those chosen to serve as a REIT Trustee.As an example, Axis Trustee Services Limited is the trustee for both Embassy Parks REIT and Brookfield REIT. The Trustee's duty is to maintain trusteeship over the REIT's assets for the benefit of unitholders. They must also keep an eye on the manager's activities and guarantee that dividend payments are made on time.

supplementary key The following SEBI-mandated requirements must be met by Indian REITs in order to be eligible:

• A REIT must invest at least 80% of its capital in commercial real estate that can be rented out to produce income. Up to the 20% cap, the trust's remaining assets may be retained as cash, equities, bonds, or commercial real estate that is still under construction.

• The REIT must pay its unitholders dividends or interest on at least 90% of the rental income it receives.

• REITs must be listed on the stock market.

We'll talk about how real estate firms profit from the development of REITs in the following section.

Why are REITs Created?

It is evident that REITs give investors access to commercial real estate that is not normally readily available to small retail investors, allowing them to participate in and benefit from it. Here are a few additional advantages for real estate firms that create a REIT, though. The following significant tax exemptions are only granted to REITs and not to other categories of real estate businesses in India:

• The interest and dividends that a REIT receives from a Special Purpose Vehicle (SPV) are tax-free. In this sense, an SPV is a domestic corporation in which the REIT owns at least 50% of the shares. Theoretically, a REIT may own a 50% or greater share in each SPV that controls a specific Real Estate property on its behalf.

• Rent or lease revenue from real estate assets owned directly by the REIT, as opposed to through an SPV, is likewise exempt from taxes.

Real estate companies may be able to lower their tax obligations and increase their income thanks to these tax advantages. A real estate company can potentially receive extra funding for upcoming projects through the IPO by putting a REIT on the stock market 4 BHK flats in Nashik. Let's examine how REITs achieve this as the aim of any investment is to provide returns for the investor.

How Do REITs Generate Returns for Investors?

Any investment should work toward boosting investors' wealth or generating consistent income. REITs provide unitholders with both of these benefits. Investors may receive monthly dividend and/or interest payments that offer consistent income, and they may also realize capital gains from the sale of REIT units on stock exchanges.

1. Dividend and Interest Payouts: REITs use their net rental income to pay dividends and interest. This is the amount of money a REIT makes by renting and leasing commercial real estate after deducting some significant costs for facility management and upkeep. By subtracting specific expenditures from gross rental income, such as management fees, depreciation, maintenance charges, etc., a REIT's net income is determined. According to the SEBI requirement in effect right now, REITs must distribute at least 90% of their net rental revenue to investors in the form of dividends and interest.

2. Capital Gains: Since REITs are public and traded on stock exchanges, the price of individual units varies according to both market demand and REIT performance. Similar to equity stocks and mutual funds, a REIT's strong performance raises the price of its units, which can then be sold for a profit and result in capital gains for the investor. Let's now examine in more detail the main advantages and restrictions of purchasing units of a real estate investment trust.