As demonetization took place, real estate came into the loop when PM Narendra Modi had called upon note ban on November 8, 2017. In fact, it was one of the most affected sectors of the Indian economy which is still facing huge liquidity crunch. But, what is the best way to come out of this cash crisis? It is the Real Estate Investment Trusts (REITs) which can greatly help the real estate sector in coping up with the liquidity crunch.
REITs are like substitute elements for real estate investment which gives investors a chance to invest in realty sector. REITs basically manage assets which they have in their portfolio and work similarly in the way as stock markets. Here, the realty investors play the role of shareholders. In 2014, the government had dispatched the guidelines to execute and facilitate the launch of first REIT.
Working of REITs
REITs fundamental working principle is the raising of funds and investing them. They raise funds from the willing investors and invest this money in the different real estate properties. There are two ways to invest this money – directly or by a special purpose vehicle (SPV). If the investment is done through the SPV, it is supposed to hold not less than 50% in equity. And in the REITs assets, SPV should hold 80% equity. The minimum number of requirement of subscribers to form REITs is 200 (related parties excluded). Also, in the initial offer, the minimum public share should always be more than 25% of the total number of units of the REITs.
Both kinds of investors- institutional and retail find REITs very alluring. Investors see REITs as a great way for constant flowing current income at the same time an option for long-term growth.
As per the experts, REITs have huge growth opportunities in India. Though it yields just mediocre returns but the fact that it is relatively safe makes it a sought-after option among investors. REITs are expected to attract a huge amount of retail investors who previously could not do so because of various reasons.
High level of involvement is predicted as the minimum amount of investment is just Rs. 2Lakhs.
REITs will be providing new ways to face the cash crunch prevailing in the real estate market. They will also provide guidance to adjust the leveraging of the companies. Ambitious investors who even only want to expand their investments in real estate will also find REITs interesting.