If you have Rs 2 lakh to invest, your bank may roll out a red carpet, your stock broker may inundate you with hot tips and the friendly neighbourhood jeweller may even offer a discount on making charges. However, you will probably get laughed out of the estate agent's office. Not anymore. With Sebi issuing final guidelines for real estate investment trusts (REITs), you will soon be able to get a piece of the action in the property market with as little as Rs 2 lakh.
REITs are just like mutual funds, but instead of using the money collected from investors to buy stocks and bonds, they invest in property. After more than a decade of discussions, this unique form of mutual fund is finally taking shape in India. Last month, the Union Budget removed an important hurdle by giving pass-through taxation status to REITs.
REITs are just like mutual funds, but instead of using the money collected from investors to buy stocks and bonds, they invest in property. After more than a decade of discussions, this unique form of mutual fund is finally taking shape in India. Last month, the Union Budget removed an important hurdle by giving pass-through taxation status to REITs.
Last fortnight, market regulator Sebi issued final guidelines for REITs, settling several of the concerns raised by the real estate industry. Industry watchers claim that the launch of REITs will increase the flow of funds to the cash-starved real estate industry. "Even if half of the currently available Grade A office space gets converted to REIT and is listed in the next 2-3 years, it can mean an inflow of Rs 60,000-72,000 crore," says Anuj Puri, chairman and country head, JLL India.
High entry barrier
The problem with real estate as an investment is that it either occupies no place or a lot of it in a portfolio. Whether you invest in a residential property or commercial space in a metro or tier I city, the minimum investment is normally upwards of Rs 30-40 lakh. Sebi's guidelines for REITs have pegged the minimum investment at Rs 2 lakh, which will allow retail investors to participate in the real estate market. In the secondary market, the minimum holding could be even lower at Rs 1 lakh. "REITs allow even middle income individuals to invest in real estate. Without this, they can't participate in real estate because of the huge entry barrier," says Keki Mistry, vice-chairman and CEO, HDFC. The low ticket size means that investors can diversify their portfolios by including real estate without investing huge amounts in the asset class.
The problem with real estate as an investment is that it either occupies no place or a lot of it in a portfolio. Whether you invest in a residential property or commercial space in a metro or tier I city, the minimum investment is normally upwards of Rs 30-40 lakh. Sebi's guidelines for REITs have pegged the minimum investment at Rs 2 lakh, which will allow retail investors to participate in the real estate market. In the secondary market, the minimum holding could be even lower at Rs 1 lakh. "REITs allow even middle income individuals to invest in real estate. Without this, they can't participate in real estate because of the huge entry barrier," says Keki Mistry, vice-chairman and CEO, HDFC. The low ticket size means that investors can diversify their portfolios by including real estate without investing huge amounts in the asset class.
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