What are real estate investment trusts (REIT)? How do they benefit investors and the market?
A real estate investment trust (REIT) is a company that owns, and in most cases, operates income-producing real estate. REITs own commercial real estate. Some REITs also engage in financing real estate. The REITs are similar to mutual funds. REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges.
The Securities and Exchange Board of India (SEBI) recently announced guidelines for the creation of real estate investment trusts (REITs) in India. REITs are expected to be operational in 2015. Essentially, REITs will pool money from investors and invest them in income-generating real estate offering them a way to diversify their portfolios by investing in property. After collecting money, REITs will issue units to investors, which will then be listed on exchange for buying and selling. This will help establish a new asset class. For developers, it would improve property market transparency, smoothen volatile property cycles, and potentially lower the cost of capital.
