Real Estate Investment Trusts (REITs) Simplified.
A product that provides a fixed income that is better than FD +an upside like equity.
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1/ REITs are a vehicle to invest in income-producing real estate properties, managed by professionals.
2/ In India, we have REITs primarily focused on commercial real estate properties having 7-9% rental yields.
In listed REITs, Most of the completed properties are pre-leased to big companies.
Why no residential? As yields of 1-3% make them unattractive to investors.
3/ How do you get the benefit of such yield?
REITs have to distribute at least 90% of their taxable income to their shareholders.
All 3 listed REITs trade at 6-7% dividend yield (which is also tax-free)
4/ Moreover, 80% of REITs total value must come from completed & income-generating properties + it must avoid speculative land acquisitions.
What about debt then? There's a restriction there too.
Not more than 49% of the total equity.