Real Estate Investment Trust (REIT)
- 16 Mar 2019
Why is it in News?
Real Estate Company ‘Embassy Office Parks REIT” will be the first company to set up a Real Estate Investment Trust in India with plans to raise Rs 4,500 crore.
About REIT:
- A REIT is a company that owns, operates or finances income-producing real estate.
- It is modeled after mutual funds, i.e. money is pooled from the retail investors and is invested in the real estate sector.
How much is the Minimum Money that can be invested?
As per the recent SEBI guidelines, the minimum money that can be invested in the REIT is Rs. 2 Lakhs.
How does REIT Operate?
- REIT invests that pooled money into the real estate sector. 80% of the money has to be invested in completed projects and rent yielding assets.
- Remaining 20% of the money can be invested in government securities (G-Sec) or other developmental projects.
Why has SEBI put such Stringent Norms on the operation of REIT?
- Real Estate sector has got a bad name due to the delay in delivery of the projects, cost overrun etc.; this has made SEBI put stringent norms so that money of the investors is not fettered in the low yielding and risky projects and that maximum money shall be invested in the completed projects.
But how does REIT earn Profit?
- REIT invests the pooled money through experts in the offices, restaurants, housing etc. and they earn money through rents, capital gains etc.
- SEBI has made mandatory that 90% of the dividend shall be distributed to the investors.
How can REIT be of help to the Real Estate Sector?
- REIT mode of investment is an alternative form of investment that gives avenues to the investors who used to purchase houses/ flats for the sake of investment; now they can get their money invested through REIT.
- REIT will finance the Real Estate Sector which is starving for funds due to recent IL&FS crisis.
- REIT will be listed on stock exchange which will allow its share to be traded too. Thus investors will get a new area to trade upon.
Source: TH
