REITs right for you?

Real estate transactions have been recorded long before financial markets were created. So, individuals have experience in buying and selling real estate well before understanding stocks and bonds. But investing in real estate needs large capital, making it difficult for many to invest directly in properties. Here, we discuss whether REITs (Real Estate Investment Trusts) are an optimal alternative to direct real estate investments.
The trade-offs
There is an emotional satisfaction of owning a physical asset. You can also continually raise rent to keep pace with inflation. The flipside is this investment is lumpy and illiquid. If you are a working executive, investment portability is crucial. This means the ability to move investments when you relocate for work-related reasons. For these reasons, it is worth considering REITs as an alternative to direct real-estate investments.
REITs are like mutual funds that invest only in real estate. They primarily earn rental income and pass on the income to unitholders every year. REITs are required to distribute 90% of the net distributable cash flows (NDCF) to its unitholders at least twice a year; NDCF refers to cash flows after deducting operating expenses and taxes. REITs can, hence, provide stable income to unitholders, assuming they have consistent occupancy rates. Importantly, the investment size in REITs is small. You can buy one unit of a REIT through a trading account. So, REITs convert lumpy illiquid investment into an affordable liquid asset. You must, however, be mindful of two factors before investing. One, REITs are not a direct bet on real estate as they are listed securities. So, they can fall in price when stock markets tank even if rental incomes are consistent or even if there is a robust demand for rental properties. Two, REITs can't provide significant capital appreciation as they cannot significantly expand property portfolio as they distribute 90% of NDCF to unitholders annually.
Conclusion
Direct investment in land helps in generating capital appreciation whereas investment properties primarily provide rental income. You can consider REITs as an optimal alternative to rental properties, as they can provide stable income. Note REITs investing in commercial properties can have higher cash flow volatility than income earned from direct investment in residential properties. That said, before investing, you must analyse the portfolio of properties REITs hold, geographic mix, occupancy rates and past distributions.
(The author offers training programmes for individuals to manage their personal investments)

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Hindu

5 hours ago

• The Hindu

REITs right for you?

Real estate transactions have been recorded long before financial markets were created. So, individuals have experience in buying and selling real estate well before understanding stocks and bonds. But investing in real estate needs large capital, making it difficult for many to invest directly in properties. Here, we discuss whether REITs (Real Estate Investment Trusts) are an optimal alternative to direct real estate investments. The trade-offs There is an emotional satisfaction of owning a physical asset. You can also continually raise rent to keep pace with inflation. The flipside is this investment is lumpy and illiquid. If you are a working executive, investment portability is crucial. This means the ability to move investments when you relocate for work-related reasons. For these reasons, it is worth considering REITs as an alternative to direct real-estate investments. REITs are like mutual funds that invest only in real estate. They primarily earn rental income and pass on the income to unitholders every year. REITs are required to distribute 90% of the net distributable cash flows (NDCF) to its unitholders at least twice a year; NDCF refers to cash flows after deducting operating expenses and taxes. REITs can, hence, provide stable income to unitholders, assuming they have consistent occupancy rates. Importantly, the investment size in REITs is small. You can buy one unit of a REIT through a trading account. So, REITs convert lumpy illiquid investment into an affordable liquid asset. You must, however, be mindful of two factors before investing. One, REITs are not a direct bet on real estate as they are listed securities. So, they can fall in price when stock markets tank even if rental incomes are consistent or even if there is a robust demand for rental properties. Two, REITs can't provide significant capital appreciation as they cannot significantly expand property portfolio as they distribute 90% of NDCF to unitholders annually. Conclusion Direct investment in land helps in generating capital appreciation whereas investment properties primarily provide rental income. You can consider REITs as an optimal alternative to rental properties, as they can provide stable income. Note REITs investing in commercial properties can have higher cash flow volatility than income earned from direct investment in residential properties. That said, before investing, you must analyse the portfolio of properties REITs hold, geographic mix, occupancy rates and past distributions. (The author offers training programmes for individuals to manage their personal investments)

Business Standard

5 hours ago

• Business Standard

Best of BS Opinion: Startups get a boost, higher education needs a leg-up

Hello and welcome to BS Views, our newsletter that sums up today's opinion page. From Sebi's bold moves to the crisis in higher education, and from sustainability issues with rice farming to Iran's nuclear ambitions, today's pieces touch upon key issues that policymakers must grapple with. The Securities and Exchange Board of India (Sebi) board last week approved a co-investment vehicle (CIV) framework under the Alternative Investment Fund (AIF) regulations, amended rules governing Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs), and eased the delisting process for certain types of public-sector undertakings (PSUs). It also clarified norms on the issuance of employee stock ownership plans (Esops) in start-ups that plan to go public — a move that has brought relief to founders. These reforms, our first editorial argues, will make Indian markets more attractive for listings, improve the business environment for AIFs, and facilitate delisting for eligible PSUs. The latest QS World University Rankings show that India's higher education sector has recorded its best-ever performance on the global stage. Notably, seven of the eight new entrants from India are private universities — a sign of shifting dynamics in the country's higher education architecture. However, our second editorial cautions that quality remains a concern, and centres of higher education continue to face challenges such as faculty shortages, inadequate infrastructure, and underfunding. It calls for fast-tracking the regulatory frameworks recommended under the National Education Policy (NEP), strengthening public institutions, and addressing gaps in industry-academia linkages. Ajay Shah highlights a core principle of political science and international relations — the distinction between the principal and the agent, or the interests of the people versus those of the regime. In this context, he criticises the devastation caused by the Khamenei regime's pursuit of pride and nationalism in Iran. With no existential threats, Shah argues, Iran does not need nuclear weapons. Instead, the country must end state violence, focus on institution-building, and create conditions for peace and prosperity. Surinder Sud welcomes India's rise as the world's largest producer and leading exporter of rice since 2012. While newer rice strains have contributed to this growth, he warns that rice farming severely strains water resources and harms environmental sustainability. He recommends practices such as direct seeding and alternate wetting and drying of paddy fields, which can reduce water use by 30–60 per cent, lower greenhouse gas emissions, and cut fertiliser, pesticide, and labour requirements — all without sacrificing yields. Scaling up such technologies is critical for sustaining long-term rice production. Charles Finch reviews Leigh Claire La Berge's Fake Work: How I Began to Suspect Capitalism Is a Joke, calling it an early autopsy of a post-capitalist world. He observes that younger generations increasingly view capitalism as unsustainable. The book is a sustained meditation on the experience of corporate life — both its weakness and strength. Finch finds it earnest, repetitive, and at times wooden, but notes it is resolutely committed to its thesis. It offers a vision of a different life beyond the workplace — though the implication, he adds, is that only an apocalypse might make that fresh start possible.

Business Standard

12 hours ago

• Business Standard

Attractive listing: Sebi eases IPO, delisting norms for startups, PSUs

The clarifications regarding the issuance of employee stock ownership plans (Esops) in startups have brought relief to founders Business Standard Editorial Comment Mumbai Listen to This Article The Securities and Exchange Board of India (Sebi) board last week took several key decisions. Taken together, these offer clarity on many points. One set of changes eases concerns for startups. Another big step is the approval of a co-investment vehicle (CIV) framework under alternative investment fund (AIF) regulations. Sebi has also made changes to regulations governing real estate investment trusts (Reits) and infrastructure investment trusts (Invits), which affect related parties and the classification of units held by such related parties. Further, Sebi has made it easier for certain types of public-sector undertakings (PSUs) to delist.