India REIT performances: Surviving the pandemic (2024)

FAQs

What is the performance of REITs in India? ›

The percentage of Indian REITs in a portfolio goes from 9% at the smallest risk level to 19.0% at the maximum risk level. This shows that including Indian REITs in a diversified portfolio of assets is an effective way to spread out the risk.

The Challenges

Some challenges remain. These include limited knowledge of the new product and lack of robust evidence on the returns. Since Reits are listed on the NSE and BSE, trends in the equity markets will influence the return expectations of retail investors.

For each tax year, the REIT must derive: at least 75 percent of its gross income from real property-related sources; and. at least 95 percent of its gross income from real property-related sources, dividends, interest, securities, and certain mineral royalty income.

Interest Rates. During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.

So, REITs can be a good defensive asset class for investors who look for steady dividend in periods of volatility. While these will not deliver outsized returns, say from capital appreciation perspective, but the downside is also limited, providing portfolio diversification with risk reduction.

Here are some of the key advantages of investing in REIT stocks through a REIT fund… Since REITs are required to distribute nearly 90% of their earnings in the form of dividends to the REIT investors, they can be assured of a higher income ratio. This percentage has to be distributed to all investors on a yearly basis.

The benefits of a REIT investment include liquidity, diversification, and passive income in the form of high dividends. The potential downsides of a REIT investment include taxes, fees, and market volatility due to interest rate movements or trends in the real estate market.

The Indian consumers' psychology toward real estate assets regardless of the recession will not affect because of the path-breaking economic developments and government schemes and initiatives to empower potential buyers.

Hari Movva, Senior Vice President, SILA said “We are bullish on the scope of real estate in 2023 - we expect the momentum on the residential side to be steady in most markets, office providers to have a similar year, while Retail, Hospitality and Industrial Real Estate will continue having strong momentum.

What is the 90% rule for REIT? ›

To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

Invest at least 75% of its total assets in real estate. Derive at least 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate. Pay at least 90% of its taxable income in the form of shareholder dividends each year.

Compared to other investments such as stocks and bonds, REITs are subject to various risk factors that affect the investor's returns. Some of the main risk factors associated with REITs include leverage risk, liquidity risk, and market risk.

A REIT will be closely held if more than 50 percent of the value of its outstanding stock is owned directly or indirectly by or for five or fewer individuals at any point during the last half of the taxable year, (this is commonly referred to as the 5/50 test).

The property held to produce rental income must remain in the REIT for at least two years. Any accumulated expenditures made through the REIT, during the two-year duration, may not exceed 30% percent of the property's net sale price.

There is a prohibited transaction safe harbor if a REIT sells fewer than 7 properties in a year and holds each property for more than 2 years. All potential sales transactions should be reviewed in order to consider potential issues. If a transaction is determined to be prohibited, then there is a 100% tax on the gain.

Historically, REITs are one of the better-performing sectors during inflationary periods. We can see this in the following image. You'll notice REITs are in the upper right area, showing they are outperformers during periods of high inflation.

Real Estate Investment Trusts, vehicles that pay out most profits as dividends, are better positioned to weather high interest rates and recession fears than private equity real estate or stocks, according to analysts at Bank of America and CenterSquare Investment Management.

REITs are entering this period of slower economic growth with strong operational performance and are well-positioned for economic uncertainty in 2023. REIT and private real estate valuations will continue to reflect higher interest rates and a slower growing economy in 2023.

Why are REITs falling in India? ›

Budget proposals, delayed DESH Bill, hiring slowdown, and rising interest rates present a wall of short-term worry. The stocks of listed real estate investment trusts (REITs) are down 9-12 per cent from their peak in January to their low earlier this month.

As per a report, listed Real Estate Investment Trust (REITs) in India saw a 6.85% year-on-year (YoY) growth in the total leasable area. From only 87.6 million square feet (msf) in Sep'21 to 93.6 msf in Sept'22. Mindspace REIT was one of the top performers with absolute returns of 8.11% in the YTD Oct'22 period.

The minimum amount to invest in REIT India after SEBI's notification on July 30th, 2021, ranges from INR 10,000 to INR 15,000. In the same SEBI regulation, the minimum lot size for REITs was also decreased from 100 units to 1 unit.

Camden Property, Prologis, and Realty Income have some of the safest dividends in the REIT industry. All three companies have top-tier financial profiles, enabling them to sustain their dividends even during tough times. They're great options for investors seeking rock-solid passive income streams.

Summary of Why Investors May Not Want to Invest in REITs

But, REITs are not risk free. They may have highly variable returns, are sensitive to changes in interest rates, have income tax implications, may not be liquid, and fees can impact total returns.

REITs don't have to pay a corporate tax, but the downside is that REIT dividends are typically taxed at a higher rate than other investments. Oftentimes, dividends are taxed at the same rate as long-term capital gains, which for many people, is generally lower than the rate at which their regular income is taxed.

Disadvantages of REIT Investment

REITs are subject to interest rate risk, which is the risk associated with changes in interest rates. REITs may be subject to liquidity risk, making it difficult for investors to sell their REIT investments quickly.

Piyush Gupta, MD, Capital Markets & Investment Services at Colliers India said the Union budget in February 2023 had announced that the income received by REIT/InvITs unitholders in the form of 'repayment of debt' will be taxed from April 2024, as other income which was otherwise not taxable.

Will property prices fall in 2023? Prices are predicted to increase by over 7.0% nationwide (4-5% in Mumbai and Delhi, 5.5-6.5% in Chennai and Bengaluru), and a number of other economic indicators point to a strong upturn as well.

Despite all these things the real estate market will do well in 2023 since we can already see that the economy will be robust, local activity will resume and the government will take action to help tier-2 cities expand even more.

What will Indian real estate be in 2030? ›

The size of the country's real estate industry is expected to reach $1 trillion by 2030 from $200 billion in 2021, according to a joint report prepared by NAREDCO and EY.

Consequently, 2023 is anticipated to be a period of robust growth for the real estate market. In line with this, NRIs and millennials planning to invest in residential property will drive the 2023 real estate market as a result of homes becoming more affordable and fractional ownership becoming more commonplace.

Is India in a housing bubble? No, the prices in the Indian real estate market have taken sufficient time to rise. Despite the rise in price in recent years, it cannot be termed a real estate bubble.

What is the best time to sell a property? Festive/winter seasonStarting from October and going on till January, this period is aplenty with significant festivals, such as Navaratri, Dussehra, Diwali and… Festivals in India are considered auspicious.

1. Federal Realty: The king. Federal Realty has increased its dividend annually for 54 consecutive years, which it claims (and there's no reason to doubt it) is the longest streak of any publicly traded real estate investment trust (REIT).

2% Rule. The 2% rule is the same as the 1% rule – it just uses a different number. The 2% rule states that the monthly rent for an investment property should be equal to or no less than 2% of the purchase price. Here's an example of the 2% rule for a home with the purchase price of $150,000: $150,000 x 0.02 = $3,000.

There is no set lifetime for the trust in most cases. Investors who buy publicly traded shares in a REIT can usually buy as much or little as they like and dispose of the shares when they want or need to.

“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.

Bad REIT Income means (i) the amount of gross income received by the Borrower (directly or indirectly) that would not constitute (A) “rents from real property” as defined in Section 856 of the Internal Revenue Code or (B) interest, dividends, gain from sales or other types of income, in each case, described in Section ...

A REIT must have at least 100 shareholders (the “100 shareholder test”) for at least 335 days of a 12-month taxable year or during a proportionate part of a taxable year that is less than 12 months. The days need not be consecutive. This requirement does not apply until the REIT's second taxable year.

Why are REITs underperforming? ›

Summary. REIT underperformance over the past 10 years has been the result of multiple contraction while broader market multiples expanded. This leaves REITs relatively cheap.

Therefore, if rates begin to rise then REIT cash flows will decline at a time when discount rates are rising. They fear the end result will be capital losses that offset the higher distribution yield and result in negative total returns.

Poor performance along with market uncertainty has contributed to net outflows of capital. In 2022, real estate ETFs saw $4 billion in outflows relative to $600 billion in inflows, according to CFRA. “In general, the sector has been under some pressure as it is a very rate-sensitive sector because of the debt.

4-3-2-1 rule

The front quarter of the standard site receives 40% of the total value. The second quarter receives 30% of the total value. The third quarter receives 20% of the total value; and the rear quarter receives just 10% of the total value.

The top 7% are hustlers. If they don't know something, they'll learn it. If the heat is on, they'll put in the extra hours to make it happen. You don't have to know everything, everyone, have all the money, or talent, but if you'll apply those two principles, you'll do very well in real estate.

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

Rule No. 3: The price of your home should be no more than 3x your annual gross income. This is a quick way to screen for homes in an affordable price range. It also takes into consideration down payment percentages and prevents you from stretching too much, even with a high down payment.

By law and IRS regulation, REITs must pay out 90% or more of their taxable profits to shareholders in the form of dividends. REIT investors who receive these dividends are taxed as if they are ordinary income. Plus, whether REITs are public or private, they must pay out the standard 90% of their income.

Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.

Since the initial investment is not guaranteed, you could lose all your money. A REIT is not a fixed income investment. A rise in interest rates can reduce the value of the units, as investors can then choose other more profitable investments.

Are REITs taxed twice? ›

REITs are one source of corporate income that are not double taxed. This means they aren't taxed at the corporate and individual levels. This is because they don't pay corporate taxes if 90% or more of their profits are distributed to shareholders.

REITs offer elevated yields and one can make income through dividend as well as capital gains. The rental yield in REIT is mostly in the range of 5-7%, while the overall income ranges annually from 12% to 20%. REIT is a great way to diversify portfolio by getting exposure to commercial real estate.

For example, earning 11% annual total returns on a $300/month contribution would allow an investor to surpass $1 million after just 33 years. Setting aside $100 a month for each of these three real estate investment trusts (REITs) could make you a millionaire in the span of just over three decades.

Notable REITs

The five largest REITs in the United States in 2021 are: American Tower Corporation, Prologis, Crown Castle International, Simon Property Group and Weyerhaeuser.

As interest rates rise, they can depress the price of these REITs. So while dividends may climb with interest rates, the price of publicly-traded REITs may decline. Historically, REITs are one of the better-performing sectors during inflationary periods.

For someone who is invested in REITs, how is that possible? You can invest through a demat account. The first REIT was launched in 2019, second one in 2020 and the recent one is Brookfield which was listed in 2022. Anyone having a demat account can just login and invest into REITs.

Both resident and Non-Resident Indians (NRIs) are eyeing CRE properties to get attractive returns on investments. While commercial properties are valued above Rs. 20 – 30 cr, individual investors can also buy such assets through fractional ownership (starting from Rs.

Why are rental yields so low in India? ›

One of the causes for the nation's poor rental yield is that rents have not grown following the rise in property values over the years. In truth, renting out houses is not particularly profitable since the rental laws give renters far too much control and landlords far too little.

In Budget 2023, the Finance Minister proposed to tax a part of distributions by REITs and InvITs, classified as 'repayment of loans' (or return of capital), in the hands of unitholders, as 'other income'. This proposal will lead to a substantial increase in tax on gains from REITs and Invits.