Is REIT right for you?

Veeru was engaged in a heated political discussion with his friends at Nair's Tea Stall when Gabbar and Basanti found him looking all hot and bothered. Gabbar: Veeru, let me get you some lassi. Take a chill pill and let's talk of something more useful like investments. Veeru (grumpily): What do you want to discuss now? I thought I and Jai gave you the Ramayana and Mahabharata of mutual funds in our last emergency meeting. Gabbar: No, no, I have something that you too may struggle with, Veeru bhai - REITs. Basanti just told me that she invested in the Embassy REIT IPO and has got allotment, too. It listed at just 4 per cent above offer price. Veeru: Wow Basanti, you are a real HNI. I heard the minimum investment amount for the Embassy REIT IPO was Rs 2.4 lakh. Basanti: Yes, it was. But I wanted to buy it because I felt it was better than buying plots of land, Veeru. I have so many plots in this town and they are so hard to protect from rowdies like Gabbar's friend Kalia! Gabbar: Veeru, I am kicking myself for missing this IPO. Kalia was telling me that it will give an 8-9 per cent assured return every year and I can get big capital gains, too. Veeru: I am not an expert on REITs, but I find that hard to believe. As far as I know, REITs invest in a bunch of properties, earn rent from them and distribute dividends out of the rental income to their investors. I have rented out my flat in Mumbai and I can tell you that the rent every year is peanuts - it's about 2 per cent of the property value. My friends in other cities also make the same return. Then how can an Indian REIT give you 8-9 per cent dividend? Basanti: You are talking of rental yields on residential property, Veeru, which are quite low in India. But on commercial properties, rental yields are ruling at 6-10 per cent. That's what Embassy REIT (and most Indian REITs) will be doing - leasing out commercial property. Gabbar: Hey, my mamaji also rents out s

This article was originally published on June 07, 2019.