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What are REITs? | Best REAL Estate Investment options in India - YouTube
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so first and foremost take a look at the
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location wise breakup of Embassy rate so
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here you will see that they own 67 of
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their business just in Bangalore that's
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it right why because the local context
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of real estate changes from literally
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City to City just because a company is
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doing well in Bangalore does not mean
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that it will do exceptionally well in
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terms of buying real estate in Delhi hi
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everyone welcome to today's video so
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right now I am in Goa I'm looking at
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several properties because I want to
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start my own Airbnb business our Airbnb
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businesses in Goa profitable not
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profitable how am I going to develop it
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I am going to reveal some details on
[36]
this video and in case you are
[37]
interested in learning more about how to
[39]
set up an Airbnb based business let me
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know in the comment box I'll be happy to
[43]
shoot that video but on today's video I
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am going to talk about another form of
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real estate investing called as REITs
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based investing this is mostly very
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appealing to investors who do not have
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large amount of money to put into real
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estate by commercial real estate or
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start their Airbnb so they go after
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reads-based option so on today's video I
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am going to talk about the pros and cons
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of reads based investing whether I'm
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doing it I will reveal the answer also
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and what are some of the other better
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options I think which can help you make
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more money than the money you would make
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via reads I will discuss those options
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as well also a big shout out to our
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sponsors for today which is tax buddy it
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is an excellent End to End Tax filing
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platform you can go and speak with team
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at tax buddy they can help you optimize
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your taxes the tax filing return date is
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very very close by so please file your
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Returns on time it is very important you
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can check the links in the description
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box to Avail a special 35 offer on tax
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buddy so let us get the video started
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and let us first and foremost understand
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that what is the meaning of reads and
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how exactly does a read function so an
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easy way to understand about reads is to
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compare it with the example of mutual
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funds so mutual fund is for equities
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what Real Estate Investment Trust or
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reads are to real estate so let me work
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through an example and it will give you
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more clarity so in a new mutual fund
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what ends up happening is that there are
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a bunch of retail investors like you and
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me so every month we will go and deposit
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10 000 rupees 50 000 rupees or one lakh
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rupees into different different
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categories of mutual funds so we'll buy
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certain plans from LIC mutual fund or
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HDFC mutual fund or Nippon India
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management so all these are mutual fund
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companies now when we are giving this
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money to mutual funds so what are we
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essentially doing we are giving these 10
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51 lakh Rupees to mutual fund managers
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these managers what do they do they go
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and buy stocks so they will go and buy
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ITC they will go and buy HDFC bank they
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will go and buy a bunch of different
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different stocks depending on the type
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of mutual fund in which you have
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invested so what are mutual fund
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managers trying to do they are trying to
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create a brief case and briefcase of
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what they are trying to create a
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briefcase of equities if you open up
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that briefcase you will see a ton of
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different different stocks of different
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risk profiles small cap mid cap large
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cap again depending on the type of
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mutual fund in which you are investing
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now something very similar happens when
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it comes to reads now in reads what ends
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up happening is that there are small
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small investors like you and me and we
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will give the REITs manager 10 20 30 000
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1 lakh rupees and they are going to pick
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this money and going to invest there
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they are going to invest in real estate
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what type of real estate it could be
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commercial real estate it could be
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residential real estate it could be
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Health oriented for example
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hospital-based infrastructure so the
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underlying briefcase here becomes that
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of real estate so in mutual funds what
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is the underlying briefcase it is that
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of equities in REITs what is the
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underlying briefcase it is that of real
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estate this can be purely commercial
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this can be a combination of commercial
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plus residential this can be a
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combination of very type of real estates
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so now comes the natural question that
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okay why do we need REITs in the first
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place can't we just directly go and buy
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commercial properties or plots or
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agricultural land bunch of different
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different types of real estate the
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answer is you can do it and you should
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be doing it under normal circumstances
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but the ticket size for example if you
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are looking to buy a commercial property
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in an average city in India it might
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cost you a lot of money similarly if
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you're looking to purchase a home it
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might cost you a lot of money so people
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are unable to invest in real estate
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altogether now REITs is an alternate so
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here what you can do is that you can do
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fractional ownership so fractional
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ownership in REITs means that you go and
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give your 300 Rupees to reach and bunch
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of other people would also be doing the
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same that each of us would be giving
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let's say 300 rupees 400 Rupees to this
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reads and this reads will end up
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purchasing or investing in different
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types of properties they will buy a
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house also they will buy an office also
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they will buy some kind of plot also and
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we all in together will own a certain
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fraction or part of this read so that is
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what Real Estate Investment Trust in
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very easy to understand language is and
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the primary benefit of retest that
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instead of owning a big ticket
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commercial or residential property you
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are allowed to get a fractional
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ownership in real estate now very
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quickly talking about the REITs Market
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in India so the REITs Market in India is
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very very new and decent it has just
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started eight years ago so if you
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compare it to other REITs market across
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the world so you can see that in the US
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the introduction of REITs happened in
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1960 they have a fairly big and mature
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Real Estate Investment Trust Market they
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are almost 96 percent of real estate is
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owned through reads in India opposite is
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the situation that only 17 of the real
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estate in India is owned through REITs
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that is not very big rest 83 of the
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market is somewhat unorganized so to say
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now given the fact that it's a new
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Option it can be very exciting also it
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can be very challenging also there can
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be advantages and disadvantages also now
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before discussing the advantages and
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disadvantages of investing Maya eats let
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me give you very quick commentary on
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some of the Salient points associated
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with Crete investing in India so first
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and foremost the REITs investing in
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India is fairly unknown and it is being
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tried to be promoted quite a lot so you
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will frequently see articles where good
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things about reads will be written that
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in know what fractional ownership and
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you become like a Malay you own like
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real estate it is great for hedging this
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stuff right and these are true I'm not
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saying that these are false these are
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good things but you need to understand
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the whole situation holistically but
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please remember for now that point
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number one is that this is a new
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instrument there are a lot of
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uncertainties associated with it second
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key point that if you study the
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briefcase that reads on that as per CV
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regulation 80 of the money needs to be
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invested via the REITs company into
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develop the project so projects that
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have already been developed it's not as
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if that they can buy kachaland or under
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developed land or land that is being
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developed all that stuff no 80 of the
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money needs to be deployed into projects
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that are already developed rest 20 of
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the money can go to risky assets or
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risky real estate assets for example
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these could be under a developed lands
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or lands that are up and coming these
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could be projects that will get
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developed 10 years from now 15 years
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from now etc etc so please remember that
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one fifth part of reach is risky eighty
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percent part of reach is somewhat safe
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now comes our related point that almost
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90 percent of cash flows that a company
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that is running the reads generates it
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has to be passed on to the shareholders
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of rates so let me give you the example
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of MBC reads here which is the oldest
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Reit in India and let me show you some
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numbers now this is Embassy reads and
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this is one of the oldest reads in India
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even this got listed just a few years
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back so here what you will see is that
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number one debt to equity is 50 or more
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than 50 because majority of these Reit
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companies are debt oriented companies
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they take a lot of debt so as a result
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this is a slightly risky investment from
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that particular perspective that if
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tomorrow economy stalls for another 10
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years then these companies might not be
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able to service their debt given the
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high debt nature of reach you should be
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little bit careful from that particular
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perspective in fact let me not pinpoint
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just to reach here almost any kind of
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real estate investing is debt oriented
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investing mostly for example if you go
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and buy a two crore House majority of us
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would do it on debt so so therefore real
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estate by default is a debt oriented
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game so entire real estate sector is
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risky because of the prevalent nature of
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debt within it now if you study the
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financial of Embassy reads what you will
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notice is that the company has been
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making profits so for example their
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sales have been up and their profits
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have also been up so this 862 crores is
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the net income and as per savings
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mandate 90 of this income needs to be
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given back to shareholders in the form
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of dividends so therefore reads as per
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sevi's mandate need to distribute 90 of
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the income that it is making every year
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now if you go and study the estimates
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when these Dividends are given out the
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dividend usually ranges between six to
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seven percent at least for the last one
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one and a half years that has what the
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case has been with majority of the reads
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that you get approximately six seven
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percent return rest of the returns need
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to be made through invest testing in it
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for example it is like buying a stock
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price from that angle that if you buy
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Embassy reads as the current price of
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368 and then if you get to sell it at
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400 rupees within a year then you will
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be able to make a 32 rupee profit so how
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are you profiting one by the rise of
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Embassy share price so to say and second
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is the dividend yield that they are
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offering you and this dividend yield
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right now hovers between five to seven
[553]
percent so you will say that okay great
[554]
I'm getting five seven percent almost
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guaranteed dividends plus I'm getting
[559]
share price appreciation also so
[561]
therefore this becomes like a great
[563]
instrument to invest but you should not
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think that way and I will explain you
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why when we discuss the disadvantages of
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investing in reads now what are some of
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the options that you can execute in
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terms of investing in REITs in India so
[574]
one becomes Embassy Office Park rate and
[577]
you can also check some of its PR so one
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is mind space business and one is
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Brookfield India so these are some of
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your read investing options in India so
[584]
in case you are interested in doing
[586]
fractional ownership of real estate via
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reads these are your possible three four
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options that you can go and execute now
[593]
comes advantages and disadvantages so
[595]
please listen to this section very very
[596]
carefully a lot of research has gone
[598]
into it so let us first and foremost
[600]
talk about advantages so first key
[601]
advantage of investing via reads is that
[604]
it makes the instrument accessible so
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because there is low cost involved so
[608]
you can go and buy Embassy rate at
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roughly 350 400 rupees so you get to
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invest in real estate in only 350 400
[614]
rupees and you might get super excited
[616]
with it so this is the first key
[618]
Advantage second key advantage of
[620]
investing via REITs is that it allows
[622]
you to participate in the commercial
[624]
real estate economy so as per a crystal
[626]
report and I will link it here the
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commercial real estate market is growing
[630]
in India it is being well Managed IT is
[632]
organized and with the professional
[634]
management of REITs companies because
[636]
read will have a manager also and they
[638]
will manage properties for you so as a
[640]
result you can participate in this
[642]
commercial real estate boom and you can
[644]
benefit from it now comes the third and
[646]
final advantage of investing via REITs
[649]
and here we can look at some of the
[650]
developed markets and there is a very
[652]
strong economic correlation between High
[654]
inflation and performance of reads so
[656]
this data comes from Singapore where the
[658]
Real Estate Investment Trust Market is
[660]
mature so we can trust the data to a
[662]
very large extent and what you will see
[664]
is that during a high inflation
[665]
environment the REITs typically give
[668]
better returns compared to equities in
[670]
fact even in a moderate inflation
[672]
environment REITs in Singapore have
[674]
given better returns it's only during
[676]
the low inflation that S P 500 returns
[679]
have beaten REITs investment returns so
[681]
now you will get super excited you will
[683]
say that okay fine I'm going to invest
[685]
in reads from Tomorrow enough with this
[686]
hul hbfc Bank game I'm done with it I am
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going to invest all my money in reads
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from today onwards and in fact if I'm
[693]
getting Shadi garisha I will say that
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you know what I don't own a house but I
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own REITs which is even bigger so yeah I
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can throw some weight around so anyways
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moving on let us discuss some
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disadvantages of reads and let me speak
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about three prominent disadvantages
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number one the real estate market in
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India is opaque laws unfortunately are
[710]
very weak in India especially when it
[712]
comes to real real estate in fact I was
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speaking with someone from Goa and the
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person told me that you know what
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Sometimes some Portuguese people come to
[718]
Goa and they tell that you know what we
[720]
are the descendants of this particular
[722]
person and the property on which you are
[724]
living we own it technically so now that
[725]
property belongs to us good luck
[727]
fighting in court so the point is that
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because of the fact that the real estate
[730]
market in India is very very immature so
[733]
to say simply because of the fact that
[735]
up until this point at least till
[737]
2017-18 there was a lot of black money
[739]
that was pumped into real estate sector
[741]
in fact even now there is a lot of black
[743]
money in that sector so understanding
[746]
the return in holistic terms
[747]
understanding what type of deals are
[749]
getting through versus not even if those
[751]
companies are being professionally
[753]
managed it becomes a challenge because
[755]
the underlying asset here is real estate
[757]
and that itself has a lot of
[759]
complications and challenges think about
[760]
it this way that why did it take India
[762]
so many years to get into Reed's Market
[764]
to begin with this Market has been quite
[766]
mature in U.S Singapore other developed
[768]
economies but why it has taken so much
[770]
time to come to India the answer there
[773]
is fairly simple that real estate market
[775]
in India might not have been mature
[777]
enough now a related Point here is that
[778]
expanding a read-oriented business is
[781]
very very challenging so let me pick the
[782]
example of Embassy rates only and let me
[784]
show you two data points so first and
[786]
foremost take a look at the location
[787]
wise breakup of Embassy read so here you
[790]
will see that they own 67 of their
[792]
business just in Bangalore that's it
[794]
right now if they go to Hyderabad or Goa
[797]
or some other location in north for
[798]
example then expanding their business is
[801]
going to be challenging why because the
[803]
local context of real estate changes
[805]
from literally City to City just because
[807]
a company is doing well in Bangalore
[809]
does not mean that it will do
[810]
exceptionally well in terms of buying
[812]
real estate in Delhi they might end up
[814]
identifying and buying some really bad
[816]
Properties or highly over inflated
[818]
prices in Delhi so that can always be a
[820]
challenge now second key data point is
[822]
the rental income that these reads make
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so let us again take the example of
[825]
Embassy read and Rental income depends
[827]
on the occupancy rates occupancy rate
[829]
means that if I have 100 rooms to rent
[831]
how many of of my rooms are being rented
[834]
every single month so here you will see
[836]
and let us just look at pre-covet data
[838]
so you will see at one point in time
[839]
they were renting 55 percent of their
[841]
spaces then it fell it came down to
[843]
approximately 38 even before covet
[846]
situation so there is a lot of
[847]
Simplicity associated with REITs
[849]
oriented business now second key or
[851]
major problem that I see in read says
[853]
the commission's oriented nature of
[855]
business so here is a snippet and you
[856]
can check this the reads commission can
[859]
range from around three percent and it
[861]
will at least be two percent on the
[864]
investment amount and it is charged
[866]
upfront now there are series of problems
[868]
associated with this so first and
[870]
foremost problem is that the growth of
[871]
real estate does not happen at 15 20 25
[874]
30 kagger for example when a mutual fund
[877]
manager charges two percent commission
[879]
to manage the mutual fund that is
[881]
somewhat still sensible why because of
[883]
the fact that the underlying asset which
[885]
are stocks they can give 20 kagger
[888]
returns but if the real estate
[889]
investment itself is not even giving you
[891]
15 and kagger and the manager there is
[894]
charging three percent that can eat into
[896]
almost all your profits so this is a big
[898]
red flag for me that the commissions
[900]
right now on reads are very very high as
[902]
per my understanding third and finally
[904]
it is the high debt game that reads
[906]
companies play so they are highly
[908]
leveraged a lot of things can go wrong
[910]
add on to that where there is a 20
[912]
leeway in terms of buying the type of
[914]
properties that they want to buy they
[916]
can do risky investing they can go and
[919]
buy their friends property at over
[920]
inflated prices what not if these type
[922]
of news comes into the market then guess
[924]
what will happen to that particular
[926]
reads price I'm not trying to cast as
[928]
persons I am just trying to tell you all
[930]
the possibilities that can exist given
[932]
the nature of real estate investing in
[934]
India so from these three reasons that
[936]
the commissions are very high it is an
[937]
opaque Market I get very less control in
[940]
terms of what I'm owning I can't monitor
[942]
things that are being purchased I do not
[944]
invest even one rupee increase now comes
[946]
the natural question that okay I want to
[948]
invest in the real estate market what
[950]
should I be doing so number one if you
[951]
can buy commercial properties outright
[954]
you should definitely do it you will say
[956]
that okay Delhi Mumbai prices are very
[958]
very high go to tier two tier three
[959]
cities you can buy commercial property
[961]
at 10 15 20 lakh rupees also very very
[964]
easily here is a video that I've done
[966]
showing my commercial property you can
[967]
go check it out you will learn more
[969]
points about commercial real estate
[971]
investment second point is that you can
[973]
rather buy a business that deals in
[975]
properties for example Airbnb would be a
[977]
classic share in case you want me to
[979]
make a detailed video on Airbnb I'm
[981]
happy to do it but right now Airbnb is
[983]
trading very low and it is a great stock
[985]
I'm not saying that you should go and
[986]
buy not buy etc etc that is completely
[989]
your prerogative I am sharing an option
[991]
of factional investing in a real estate
[993]
even Airbnb is one such company and
[996]
there are a host of Real Estate stocks
[998]
in India that you could consider
[999]
purchasing outright this is your option
[1001]
number two so now comes the third option
[1003]
of starting an Airbnb business now of
[1006]
course the investment amount is higher
[1007]
I'm not saying that you can do
[1008]
fractional ownership here but I will
[1010]
still explain you my rational and one
[1012]
simple point that I will talk about here
[1014]
is the yield that you make through
[1016]
Airbnb business so think about it this
[1018]
way that if you're owning a property in
[1020]
Delhi so every one crore worth of
[1022]
property that you own your rental yield
[1024]
becomes 20 to 25 000 per month so yearly
[1027]
rental yield become roughly two to three
[1029]
percent so that is the yield and this is
[1031]
the return in which you are interested
[1032]
now when you do Airbnb business and at
[1035]
least I have inquired across different
[1036]
cities in India so this rental yield can
[1039]
go from somewhere between six percent
[1040]
all the way to fifteen percent so yes
[1043]
there are a lot of logistical challenges
[1044]
in terms of managing your Airbnb
[1046]
business but this is definitely a viable
[1048]
option so when you buy a residential
[1050]
real estate you get complete control of
[1052]
the yield because you can run an Airbnb
[1055]
business in it so net net I would say
[1057]
that don't jump into investing in REITs
[1059]
right away get the market mature a
[1061]
little bit and then you can make a call
[1062]
whether investing in reads or not
[1064]
investing in reach would make more sense
[1065]
in case you are interested in buying
[1067]
Residential Properties definitely do
[1069]
look into Airbnb space otherwise if you
[1072]
can buy a commercial real estate in tier
[1073]
two tier three cities that could be a
[1075]
much prudent financial decision I hope
[1077]
you enjoyed the video and I will see you
[1078]
soon
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