Real Estate Investment Trusts (REIT) - Explained | How to Invest | Types | Taxation | Hindi Audio - YouTube

This kind of investment will make your dad happy and your grandfather proud. I am talking about investing in the real estate market.

Buying a home is not just an investment but also an emotional decision.

But the real issue with investing in the real estate market is the huge capital requirement, if you have opted for a loan then in most cases the interest component of the loan out beats the principle amount, add scams, and the amount of paperwork real estate investment is not an easy deal.

However, two cheaper alternatives to investing in real estate directly are: Buying stocks of the companies involved in properties and Investing in REITs: Real Estate Investment Trusts

In this video, we will understand the following mentioned topics

REITs are an entity that own, operates, or finances income-generating real estate. They function just like a mutual fund where they take a pool of money from the investor, company, or any institution. They will buy a piece of land and make it a commercial property.

Then these REITs collect money in the form of rent and distribute the rent in the form of dividends to their shareholders.

Also, they divide the profits of the land they bought and sold during their tenure. Mortgage REITs divide the interest component as a form of dividend with their shareholder as there is no rent collected from the mortgage REITs.

Type of REITs in the screen as shown(text in English)

Global REITs market is around 2 trillion dollars out of which 14% is Asian REITs market share this in numbers is around 280 billion dollars. This is a huge number and the number is growing every year. Yet, In India REITs are not very popular because of the lack of marketing and awareness

SEBI has set some guidelines in order to make REITs more attractive and also allow the common investors to invest in them without worrying about getting cheated.

SEBI Guidelines of REITs on the screen as shown(text in English)

These rules make REITs attractive not just for Indian Investors, but also for foreign investors.

Two ways of making income from REITs are shown on the screen (text in English)

The rule of 90% cash flow should be divided as a dividend to the shareholders to help the investors earn a steady income from REITs is a bold move by SEBI.

REITs have their own expenses such as Management fees, depreciation cost of the property, maintenance charges, etc which are taken care of by the remaining 10% of the cash flow and the fees charged to the shareholders.

EMBASSY REIT payout is shown on the screen (text in English)

Calculation of gross yield shown on screen. This 6.8% is the gross distribution yield and not the net distribution yield. Net Yield is calculated post-tax deduction. This gives you an idea of how much you can make from the REITs.

The distribution Yield of all the REITs is shown on the screen (text in English)

As you can see in the image Brookfield India Real Estate Trust REIT pays out maximum Gross Distribution Yield to its shareholders.

There are four different return types on which taxation can be applied: Interests, Dividends, Ammoritization of SPV, and Capital Gains.

Taxation of REITs shown on the screen (text in English)

Calculation of Interest calculated for Embassy REIT on screen

Taxation of REITs shown on the screen (text in English)

This is not a recession-proof investment because with every recession the commercial rental goes down also not a pandemic-proof investment. Taxation of the distribution yield is complicated at times.

Everyone looking to diversify should invest in REITs, but make sure you don't compare it with the equity market because the returns will never be the same. REITs are safer and provide steady income.

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