MSM REITs: Transforming India's real estate investment landscape (2024)

FAQs

What is the difference between REIT and MSM REIT? ›

MSM REIT is different from a regular REIT, just as investing in a REIT is akin to owning units of a MF scheme, while MSM REIT is akin to owning shares of a company. Let's understand the structure of MSM REIT, which is similar to that of a traditional REIT: Trustee. Sponsor/sponsor group.

REITs in India have the potential to generate an annual return of around 14% making them an attractive investment option. Unlike a direct investment in real estate, REITs are traded on stock exchanges, making them a more liquid investment option.

Real estate investment trusts, or REITs, are a great way to invest in the real estate sector while diversifying your options. Real estate investments can be an excellent way to earn returns, generate cash flow, hedge against inflation and diversify an investment portfolio.

MSM REITs offer investors the opportunity to invest in commercial real estate with property-specific focus. Investors can assess asset quality based on location, lease structure, and demand/supply dynamics. Diversification across asset classes and geographies is recommended to mitigate risks.

REITs and mutual funds have a few common genes. They collect money from investors and buy income-producing assets. But unlike the stocks owned by equity-oriented mutual funds , the properties bought by REITs are not tradable as easily as stocks. So, they may not be as liquid.

Sale of REITs

Capital gains made on sale of Indian REITs is subject to STCG tax if held for less than one year at the rate of 15%. Investments held over one year are subject to LTCG tax at the rate of 20% in excess of Rs. 1 lakh.

There are a few factors contributing to the decline in Indian REITs. The rising interest rates are one reason. The cost of borrowing money rises as interest rates rise, making it more difficult for REITs to finance their operations. REITs' share prices may fall as a result of this, which may result in lower income.

The best REITs in India, based on dividend yield, occupancy rate, and loan-to-value (LTV) ratio, are: Brookfield REIT: With an 8.5% dividend yield and 92% occupancy rate, Brookfield REIT stands out for its tax-free distribution of 75%.

What are the 3 REITs in India? ›

Prices are also influenced by the performance of the REIT. At present, there are 3 options of REITs in India–Embassy Office Parks REIT, Mindspace Business Park REIT, and Brookfield India Real Estate Trust.

While real estate has never been a big part of Buffett's investing strategy, Berkshire Hathaway has owned shares of STORE Capital, a REIT focused on single-tenant operational real estate.

For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.

According to a report by Edelweiss, Indian REITs offer an average yield of 7-8% compared to 5-6% for residential properties, and 2-3% for government securities. Moreover, as REITs are required to distribute at least 90% of their income to investors as dividends, investors can receive a regular stream of income.

The two main types of REITs are equity REITs and mortgage REITs, commonly known as mREITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. mREITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.

Mortgage REITs (or mREITs) invest in residential and commercial mortgages. These REITs loan money for mortgages, or purchase existing mortgages or mortgage-backed securities (MBS). While equity REITs typically generate revenue through rents, mortgage REITs earn income from the interest on their debt investments.

REITs tend to utilize higher leverage than MLPs due to the high financing costs of accumulating real estate inventory while at the same time meeting the 90% distribution criteria. At the same time, MLPs exhibit a relatively stable long-term fee-based income structure that leads to lower borrowing requirements.