Unlocking Real Estate Investment Opportunities: A guide to REITs and Demat account investing

Demat accounts have expanded their horizons beyond just equity trading, now providing investors with a plethora of opportunities to diversify their portfolios across various asset classes. In addition to stocks, investors can seamlessly explore bonds, mutual funds, ETFs, and Real Estate Investment Trusts (REITs).

Traditionally, real estate investments have been favored by Indians due to their potential for capital appreciation and steady rental income. However, these investments typically required substantial capital ranging from ₹50 lakh to ₹1 crore, especially in metropolitan areas.

For investors looking to tap into real estate without hefty investments, REITs offer a viable alternative. These investment vehicles enable individuals to participate in the real estate market without the need for a substantial corpus, offering accessibility and diversification.

Real Estate Investment Trusts function as investment vehicles that own, operate, or finance income-generating real estate across various sectors such as commercial properties, residential complexes, or infrastructure projects. They allow individual investors to invest in real estate assets without directly owning or managing them. 

REITs collect funds from investors and allocate them to real estate ventures such as office spaces and shopping malls. Subsequently, they distribute the generated returns to the investors.

Take, for instance, “ABC REIT,” which specializes in owning and managing shopping malls spread across various cities in the country. Instead of purchasing an entire shopping mall, individual investors have the option to acquire shares of ABC REIT. By buying shares of ABC REIT, investors become partial owners of the portfolio of shopping malls that the REIT owns. As these shopping malls generate rental income, ABC REIT distributes a portion of that income to its shareholders in the form of dividends.

Investors can earn returns from REIT investments through dividends and potential capital appreciation if the value of the underlying real estate assets increases over time. Additionally, REITs are often traded on stock exchanges, providing investors with liquidity and ease of buying and selling their investment shares.

 In India, there are primarily two types of Real Estate Investment Trusts: equity REITs and mortgage REITs.

Equity REITs involve commercial entities like Mindspace owning and operating properties such as offices, hotels, and shopping malls. These properties generate rental income, which is then distributed among all the REIT holders in proportion to their holdings.

Mortgage REITs, on the other hand, focus on the financial aspect of properties, investing in mortgage-backed securities or providing financing for real estate projects. They earn interest income from these investments, which is then distributed to the REIT holders in proportion to their holdings.

Investing in REITs necessitates a demat account, similar to investing in stocks. Currently, there are only three REIT funds in India: Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust.

To invest in Real Estate Investment Trusts using a demat account, investors can follow these steps:

1. Choose a Broker: Ensure you have a demat account with a brokerage firm that offers access to REITs.
2. Research REITs: Identify REITs that align with your investment goals and risk tolerance.
3. Place an Order: Log in to your brokerage account and place an order to buy shares of the REIT.
4. Review and Confirm: Review the order details and confirm the trade.
5. Monitor Your Investment: Keep track of your investment performance regularly.
6. Consider Diversification: Diversify your portfolio by investing in multiple REITs across different sectors or geographic regions.