What are Trusted Real Estate Investment and why do we need
In Present time, the Securities and Exchange Board of India (SEBI) has put up Real Estate Investment Trusts (REIT) for public comments in order to draft the final set of guidelines.
So, what are REITs and what benefits can they provide to small investors with 2-3 Lacks of invest-able income? Can these investors invest small amounts in REITs? We explore here.
A real estate investment trust is basically a generated of the internal revenue code. It is a real estate company and trust that has elected to qualify under certain tax provisions to become a pass-through entity that distributes to its shareholders substantially all of its earnings in addition to any capital gains generated from the sale or disposition of its properties. Because the individual investor has the opportunity to pool his/her resources with those of persons of like interests, funds are assembled to permit the purchase of buildings, shopping centers, and land in whatever proportion seems to offer the most attractive returns. Investments must be approved and management activities reviewed by a board of trustees who are accountable to shareholders and are ordinarily well qualified to make such decisions.
So, what are REITs and what benefits can they provide to small investors with 2-3 Lacks of invest-able income? Can these investors invest small amounts in REITs? We explore here.
A real estate investment trust is basically a generated of the internal revenue code. It is a real estate company and trust that has elected to qualify under certain tax provisions to become a pass-through entity that distributes to its shareholders substantially all of its earnings in addition to any capital gains generated from the sale or disposition of its properties. Because the individual investor has the opportunity to pool his/her resources with those of persons of like interests, funds are assembled to permit the purchase of buildings, shopping centers, and land in whatever proportion seems to offer the most attractive returns. Investments must be approved and management activities reviewed by a board of trustees who are accountable to shareholders and are ordinarily well qualified to make such decisions.
These are the requirements to qualify as trust in countries where REITs are in existence for years:
Asset requirements:
Asset requirements:
- At least 75% of the value of a REIT’s assets must consist of real estate assets, cash, and government securities.
- Not more than 5% of the value of the assets may consist of the securities of any one issuer if the securities are not includable under the 75% test.
- A REIT may not hold more than 10% of the outstanding voting securities of any one issuer if those securities are not includable under the 75% test.
- Not more than 20% of its assets can consist of stocks in taxable REIT subsidiaries.
Stock and ownership requirements:
- Be taxable as a corporation
- Board of directors or trustees should manage the REIT
- Fully transferable shares
- REIT shares must be transferable and must be held by a minimum of 100 persons
Affordable housing has significant underlying demand (and hence a big opportunity for developers). Plus, multiple incentives announced by the government have resulted in many prominent developers entering this space.
Developers are likely to benefit from RERA due to their stable balance sheet (ability to comply with 70% escrow requirement), good execution capability and better corporate capability to comply with new rules.
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