What Is A Real Estate Investment Trusts?

By admin April 14, 2019 01:32

What is a real estate investment trust?

Real Estate Investment Trusts (REIT) are those companies that own or finance income-producing real estate in the range of property sectors.

In fact, it allow individual investors to buy shares in commercial real estate portfolios that receive income from a variety of properties, including apartment complexes, data centres, healthcare facilities, hotels, infrastructure (e.g., fibre cables, cell towers, and energy pipelines), office buildings, retail centres, self-storage, timberland, and warehouses.

  • A real estate investment trust (REIT) is a company that owns, operates or finances income-producing properties.
  • Equity REITs actually own and also manage some real estate; mortgage REITs hold or trade some mortgages and/or mortgage-backed securities.
  • REITs generate a steady income stream for investors but offer little in the way of capital appreciation.
  • Most REITs are publicly traded like stocks, making them highly liquid—unlike most real estate investments.

How a REIT works

Most REITs (real estate investment trusts) have a straightforward business model: The REIT leases space and collects rents on the properties, then distributes that income as dividends to shareholders.

To qualify as a REIT, the company must comply with some provisions in the Internal Revenue Code, including some requirements to primarily own income-generating real estate for the long term and also distribute income to shareholders.

Basically, the company must meet some requirements to qualify as a REIT (real estate investment trust) that are given below:

  • Invest at least 75% of its total assets in real estate, cash or U.S. Treasuries
  • Receive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate
  • Pay a minimum of 90% of its taxable income in the form of shareholder dividends each year
  • Be an entity that is taxable as a corporation
  • Be managed by a board of directors or trustees
  • Have a minimum of 100 shareholders after its first year of existence
  • Have no more than 50% of its shares held by five or fewer individuals during the last half of the taxable year.

Indian REITs (real estate investment trusts)are allowed only to hold commercial properties.

Also, in order to bring more transparency to the real estate sector in India and to fully exploit the potential of the sector, the Government of India (GOI) has brought in RERA and brought the section under GST.

Besides, bringing in better corporate governance standards and more liquidity, the introduction of REITs (real estate investment trusts) will help broaden and deepen the capital markets, offering a liquid real estate asset class to complement equities and bonds.

It will also bring global and domestic investors to participate in the growth of the Indian real estate sector, as it would help reduce overdependence on a specific mode of financing.

By admin April 14, 2019 01:32