Indian REIT, how they work?

REITs are securities linked to real estate that can be traded on stock exchanges once they get listed. The structure of REITs is similar to that of a mutual fund. Just like mutual funds, there are sponsors, trustees, fund managers and unit holders in REITs. However, unlike mutual funds, where the underlying asset is bonds, stocks and gold, REITs invest in physical real estate. The money collected is deployed in income-generating real estate. This income gets distributed among the unit holders. Besides regular income from rents and leases, gains from capital appreciation of real estate also form an income for the unit holders.

 

REITs have been in the making for more than a decade in India, but it was only in October 2013 that a draft guideline was issued by the Securities and Exchange Board of India (Sebi). However, lack of clarity on the tax implications on the income earned and some other related aspects were holding back the instrument from becoming a reality. Though there was some movement in the 2015 Budget to overcome the issues, lack of clarity on a few things still remained. In the last few years, several amendments were made to make REITs more attractive. In the latest amendment on 1 March 2019, Sebi reduced the minimum investment limit in REIT to ₹50,000 from ₹2 lakh. However, since Embassy Office Parks REIT IPO was filed much before the amendment, the minimum amount is above ₹2 lakh.