Real estate is the biggest alternative investment in India. And while most people have the traditional view of real estate investments, that is: buying residential or commercial properties outright and having full ownership of them, a number of real estate alternative investment models are quickly making their own space and turning heads in the real estate investing sector:
Real estate syndication and Real Estate Investment Trusts (REITs).
Both models offer investors opportunities to enter into commercial real estate ventures, yet there are significant differences in structure, benefits, and risks.
Understanding these differences is crucial for investors looking to strengthen their portfolios and looking for the right real estate investment for them, and that’s exactly what we’re here to do today.
Real Estate Syndication: An Introduction
Real estate syndication in India entails pooling funds from a group of investors to purchase commercial property or develop new real estate.
Typically, a sponsor, syndicate, or real estate developer discovers a promising real estate investment opportunity. This investment is then presented to investors, who elect to participate as limited partners. These investors provide the capital and receive a share of the property’s income as well as any capital appreciation that occurs.
Advantages of REITs
The single biggest advantage of real estate syndication over traditional real estate investments is this: The potential for higher returns and income.
When you invest in real estate syndication, you’re not just buying a property: You’re leveraging the expertise of an experienced syndicators with a number of successful real estate ventures under their belt.
Investors can capitalise on: Rental income, property appreciation, and tax benefits.
In addition, benefits of real estate syndication include having a passive income stream & the attractive position of real estate ownership, without the hassle of real estate management.
What Are REITs?
A Real Estate Investment Trust (REITs) provides an alternative method of investing in real estate. A REIT is a public traded company. It owns & operates a number of income producing properties, and when you invest in the company, you indirectly invest in the real estate ventures that are a part of its portfolio.
Think of REITS like a mutual fund. When you invest in a mutual fund, you pool capital along with other investors and the fund uses that capital to invest in stocks, bonds, and sometimes short term debt.
REITs on the other hand, pool capital from investors and invest that in income producing real estate investments. These trusts invest in various real estate ventures, such as commercial real estate investing, residential complexes, shopping malls, retail centres, and so on.
REITs Features
The REIT market share in India has grown significantly, but it lags behind the fractional ownership real estatemarket.
According to Cushman & Wakefield’s latest Asia REIT Market Insight, the Indian REITs market is expected to hold approximately 180 million square feet of office space in 2024. This represents approximately 22% of Grade A real estate stock.
Here are some characteristics of investing in REITs:
- A REIT invests in real estate, leases space, collects rents, and distributes the income made from the properties as dividends to its shareholders.
- There are certain regulations and a framework to qualify as a REIT. A company must comply with certain provisions of the Internal Revenue Code.
- REITs are high in liquidity as they are publicly traded on major stock market exchanges.
- REITs have a good history of historical performance. They do better than most traditional investments such as fixed income.
Advantages of Investing in REITs: High yields & dividends, portfolio diversification, high liquidity.
Cons of Investing in REITs: Market risks, potential fluctuations in value, and not knowing the exact properties that your money is being invested in.
Real Estate Syndication vs REITs: A Comparison
| Aspect | Real Estate Syndication | Real Estate Investment Trusts (REITs) |
| Ownership Structure | Direct ownership of specific properties | Indirect ownership through shares of publicly traded companies |
| Investment Minimums | Higher minimum investment thresholds | Lower minimum investment requirements |
| Control | Investors have more control over decisions | Limited control; decisions made by management team/board of directors |
| Liquidity | Limited liquidity; typically illiquid investments | Higher liquidity; shares traded on stock exchanges |
| Diversification | Limited diversification; focused on specific properties or projects | Diversified portfolio across various real estate assets and sectors |
| Tax Implications | Potential tax deductions and benefits | Dividends taxed as ordinary income; potential capital gains tax on sale of shares |
| Potential Returns | Higher potential returns, but with higher risks | Generally lower returns compared to direct ownership, but with lower risks |
| Risk Exposure | Property-specific risks; subject to market fluctuations and property performance | Market-related risks; subject to economic conditions and REIT performance |
| Access to Investors | Limited access to accredited investors | Open to a wide range of investors, including retail investors |
| Assets Owned | Typically focused on specific properties or projects | Diversified portfolio of real estate assets across various sectors |
| Historical Performance | Performance influenced by syndicator’s track record and property selection | Performance influenced by market conditions and REIT management |
Invest with Assetmonk
Like the name suggests, alternative investments represent a departure from the conventional. Alternative investments may not be for everyone, but are they the right choice for you? This is where we come in.
Assetmonk is a unique player in the real estate alternative investment space By marrying the stability of conventional real estate investments with alternative financial investments, we have constructed an innovative bridge between traditional property investment and contemporary wealth management strategies.
Assetmonk provides a web-based dynamic alternative investment platform, it empowers investors to own stakes in high-value commercial properties, opening up opportunities for them in real estate investments with significantly lower entry barriers.
In doing so; we present investors with a unique avenue for growth by putting them in pole position for reaping off of their financial investments.
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