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Real Estate Investment Trust

Highlights

  • Overview on Real Estate Investment Trust.

  • How Real Estate Investment Trust works?

Real Estate Law Wednesday, 10th February 2016

As the civilization is gradually moving towards its peak, the Real Estate business is gaining supreme significance. As the population is increasing drastically, places to accommodate a large number of people is becoming vital and expensive too. Behind all these, which silently plays important role, is the REITs.

A REIT or Real Estate Investment Trust is an organization that owns or finances income-producing real estate. To be specific, a Real Estate Investment Trust (REIT) is an investment company that owns assets related to real estate such as buildings, land and real estate securities.

It provides a way for individual investors to earn a share of the income produced through viable real estate ownership, without actually having to go out and buy commercial real estate. The assets owned by a REIT which provide income for them may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.

In USA, REITs have existed for more than 50 years. In 1969 the first European REIT legislation is passed in The Netherlands. In India, the Real Estate industry has received a much need boost recently when SEBI finally cleared the guidelines. This has given the Real Estate industry something to cheer for as it has opened a new opportunity.

If we discuss in detail, we can see the Salient Features of REITs. Those are as follows:

1)REITs typically offer investors regular yields coupled with capital appreciation and a liquid method of investing in real estate.
2)REITs first introduced in USA and gradually it started to expand its wing in countries like Australia, UK, Germany, Singapore, Japan, Hong Kong etc.
3)In India, REITs were first introduced by the Securities & Exchange Board of India in 2007 as draft REIT Regulations. Then in September 2013, SEBI released a revised set of draft REIT Regulations and finally those regulations have been approved by SEBI on 26th September 2014.

How it basically works?

Basically, the REITs raise the money from a collection of investors and provide them access to the Real Estate. If we look for more, we can find that publically traded REITs raise the money for their portfolios by selling shares on an exchange. They generally look for individual investors. For legal part, REITs are required to distribute at least 90% of their taxable income to investors. Income comes from the rent, managing fees and leasing of the properties.

Most of the REITs are traded on major stock exchanges. If we look properly, we will get to know that there are also public non-listed and private REITs. The two main types of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. Mortgage REITs generally invest in mortgages or mortgage securities tied to commercial and/or residential properties.

To be specific, in today’s world, REITs are related to all aspects of the economy, including apartments, hospitals, hotels, industrial facilities, infrastructure, nursing homes, offices, shopping malls, storage centers, student housing etc.