Real Estate

So what exactly is real estate?

A piece of land that you can own in any form covers the broad definition of real estate. Primary forms of real estate available constitutes residential, commercial, industrial and agricultural lands. What you can buy or not buy is defined primarily by what your pocket allows and the laws of the state where you wish to invest in real estate.

Avenues of earning from real estate could be though renting, leasing, selling, maintaining a property but like we discussed above an important aspect is to consider how much the pocket allows. Unfortunately, more often than we like an area, a property but it is out of reach, we spend some time, collect some cash and by that time, thanks to the real estate boom, the property is far more expensive now.

Fortunately very recently REIT have been allowed in India, making it reasonably easier for all of us to invest in real estate. Let's see how...

Real Estate Investment Trusts (REIT's)

By definition an REIT is a company that has income generated by virtue of owning, operating and/or financing real estates but does that mean for us as individual investors, let's try and dig deeper into this.

Consider you and 4 of your friends each had 20 lakhs and you decided to buy a 3BHK in Gurgaon together. That makes everyone a rightful owner of 20% each in the property. You did not intend to live in this house and this was taken only as an investment, therefore the 5 of you rented it out for 30,000 a month making a gross earning of 6,000 per head for each of you. But you also had to pay maintenance on this at 5,000 per month, so the income after expenses for each of you becomes 5,000. Now each one of you pays taxes on this 5,000 depending on your individual tax slabs and that is your earning after taxes.

After a 10 years you decide to sell this property off and you got a reasonable buyer who paid you 2 Cr. for this property. If during this time the valuation for property had increased to 1.5Cr, 50 lakh is the total profit on property or 10 Lakh profit for each one of you which is taxed as Long Term Capital Gain.

Now that's exactly how REIT's work but on a much larger scale and with many more investors. REIT's are traded on exchange and make it easier for small ticket investors to become part of a growth story that otherwise would be unavailable to them due to the size of the capital required.

The first ever REIT in India was listed by Embassy office parks in 2019 and other are in planning to come in soon.

So does that mean we should go buy Embassy Office Parks REIT? Please be very careful in making any investment decisions. Do your own study, talk to your financial advisor and then decide what is a right investment and what is not. Bull Club and/or LoTeHIm Solutions does not advise either in favour of or against any investment in this REIT or any other financial instrument, the objective of this website is purely educational.