Real Estate Investment Trusts (REITs) are gaining traction in India, providing investors an opportunity to earn steady rental income and potential capital appreciation from commercial real estate without direct ownership hassles. These trusts pool investments and manage income-generating assets, offering a simplified and structured approach to real estate investment.

Growing Popularity of REITs in India

Despite being relatively new, REITs in India have developed over the past six years. Preeti Chheda, CFO at Mindspace Business Parks REIT, explains that investors are still understanding the nuances of this asset class, which differs from traditional equity investments. However, the concept is rapidly gaining acceptance due to its low risk and stable returns.

Regulatory Assurance and Risk Mitigation

A key factor making REITs a compelling investment choice is the SEBI-mandated regulation requiring that at least 80% of REIT-held assets must be fully constructed properties. This reduces investment risk associated with under-construction properties, ensuring investors benefit from rental income stability.

Diversification and Accessibility

"Investors are looking for diversification, and REITs offer a great way to achieve it," states Deepak Agrawal, CIO-Debt & Head of Products at Kotak Mahindra AMC. Retail investors, who may find direct commercial property investments expensive, can now participate in this sector through stock exchanges, just like investing in equity shares.

Returns and Growth Potential

REITs generate returns via two primary sources:

1. Rental income distribution – Regular payouts from lease agreements.

2. Capital appreciation – Growth in asset value over time.

Chheda highlights that REITs are listed on stock exchanges, enabling investors to buy and sell units just like equities. Agrawal suggests that investors with a 2-3 year horizon can expect returns of around 9-11%.

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