Presently the real estate sector in India contributes about 5% to the national GDP and is the second largest employer after the agricultural sector. It is growing more rapidly than any other sector at an
annualized growth rate of upto 11%.
With an intention to bring much required liquidity into the real estate sector, the Securities and Exchange Board of India (SEBI) on the 10th of August 2016, has approved the setting up of REAL ESTATE INVESTMENT TRUSTS (REITs). They will operate like mutual funds which invest in the real estate sector. Investors will get the twin benefits of yield as well as capital appreciation. REITs will issue units to investors which will then be listed on exchange for buying and selling. For developers, it will not only bring in funds for the projects but introduce greater transparency thereby reposing the faith of investors. It is expected to reduce the cost of funds thus reducing the project costs both for the developer as well as the end user.
Benefits to investors
|RIETs will provide benefit of diversification.|
A compulsory dividend payout makes them similar to a bond with a growth component built-in through price appreciation.
|Risk factor reduced as investment to be made in fully constructed properties.|
|RIETs will be managed by professionals.|
|RIETs will provide liquidity and exit options as it will be listed like any other mutual fund.|