REITS: What they are and how can NRIs invest?

NRI investment in real estate has been a common phenomenon. NRI investment in India real estate has the potential to deliver high returns. Returns are generated either through rent or through capital gains. 

NRIs are allowed to invest in broadly 3 categories of real estate in India –

  • NRIs can invest in residential properties, i.e. those purely made for residential purposes.
  • NRIs are allowed to invest in commercial property, i.e. those purely intended for running a business , investments or for commercial renting.
  • The third method of property investments is via REIT -Real Estate Investment Trust (REIT) is a publicly traded company that owns, operates or finances income-producing properties. REIT investments work similar to as mutual funds, wherein they pool the capital of a large number of investors, which makes it feasible for individual investors to earn dividends from real estate investments—without purchasing or renting any properties personally.

What are REITs?     

REIT is a company that develops and owns real estate properties. These properties generate an income. 

Properties at prime locations in prime cities of the country are expensive. So, only investors who have a lot of money can invest in them. Smaller investors do not have enough money to invest in such properties. 

The concept of REIT address this concern. REIT raises fund from a pool of investors, which gets invested in different properties; they could be residential units, offices, malls or warehouses. Such funds are listed on stock exchanges and can be traded (For eg - Mindspace REIT IPO). The process involves the launching of an Initial Public Offering (IPO) to raise money. REITs are thus, meant for all kinds of investors. Through an REIT, even a small investor can buy shares in leading commercial real estate which in return generates income for the Investor in the form of dividends. On the other hand, REIT also lets real estate companies raise funds. 

REITs in India 

REITs have been a popular investment option globally for several years. In India, the initial guidelines for REIT were first introduced by SEBI in October 2015. Since then, several changes were made to the REIT guidelines. The latest revision brought about in March 2019 made a significant change. Earlier, the minimum investment required in REIT was Rs 2 lakh. Now, it is Rs 50,000. REITs in India made a debut in March 2019. Embassy Office Park REIT had its initial public offering then. 

How can NRIs invest in REIT? 

Here is a list of steps for NRIs to invest in REIT: 

  1. Apply for an IPO: When an REIT comes out with an IPO, you can apply for it. Your application needs to be accepted. Then, you are allotted units in the IPO. 
  2. Buy in the secondary market: After the IPO, REIT is available for trading in the secondary market. It is listed on the stock exchange. You can purchase them as you buy a share. 
  3. Selecting the right REIT: REITs are subject to market risks. Returns from REITs are not guaranteed. Hence, it is essential to thoroughly research about the REIT IPO  before investing in it.
  4. How much to invest: New rules say you can invest a minimum of Rs 50,000 in REITs. How much you invest will depend on your appetite for risk and asset allocation.

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Financial planning in India for NRIs. Click here to know more.  

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.