Lets probe further.
MINDSPACE BACKGROUND :
It owns top quality office space portfolio located across Mumbai, Hyderabad, Pune, Chennai, etc.
As of March 31, 2020, Mindspace REIT’s Portfolio is well diversified with 172 tenants and no single tenant contributed more than 7.7% of its Gross Contracted Rentals.
REIT is Real Estate Investment Trust, is similar to Mutual Funds wherein the money is pooled and invested in Commercial Real Estate Assets. REITs earn rental income from their properties, which is distributed to the Unitholders. So, while MF invest in Stocks, gold, bonds, etc, the underlying asset in REITs gets invested in actual physical Real Estate.
SO, HOW EXACTLY DOES A REIT WORK :
1. A REIT (like a Mutual fund) collects money from Investors.
2. These monies are invested across Rent Generating Properties.
3. The REIT collects the Rent
4. The REIT distributes the Rent to Investors via periodical Dividend.
5. The Capital Value is reflected in the NAV
Owning a Real Estate is a challange both financially and legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.
2. No Lock-In
You as Investor can enter or exit the REIT as per your wish and convenience unlike an actual Real Estate which has its own problems. You can even sell the REITS in the Stock Markets making it very very liquid. The REITs will be listed on both the NSE AND BSE
3. Best way to have exposure to Real Estate. Affordable as you can buy a fraction of the property by buying just a few units
6. Real Estate is one of the Most non-transparent asset class and REIT aims to reduce that as it is regulated by SEBI and will be managed by Professional Managers (just like Mutual Funds)
7. DEBT ALTERNATIVE
A good alternative to Fixed Deposits and Bonds as the returns in REITS are more or less assured due to regular rents.
7. GEOGRAPHICAL DIVERSIFICATION TOO:
Since REITS will be investing in Different Geographical locations and mostly in Rental generating assets, it offers Investors a Good Diversification Option.
8. The issue proceeds will be used to pay off Debts thus the yields could see an uptick.
1. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains
3. The Average Rental Yield is not very attractive in India at present (at about 5% to 8%).
4. Since REITS are listed in the stock markets, the demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. They are not steady and flat. NO Sir!
And Short-term performance could be awful.
In fact, in the US, Dow Jones REIT Index fell 17% in 2007 and 39% next year!
Savilis India's Anurag finds REITs attractive who feels that in addition to the 7% dividend returns, there is good scope for Capital growth giving a potential DOUBLE DIGIT returns over 3-5 years period
Collection of 98 percent of rent during the last three months with an additional 0.8 million square feet being leased ensures relative robustness of the model. It has a strong balance sheet to ensure inorganic growth opportunities.
1. Dividends were supposed to be TAXED IN THE HANDS OF THE INVESTORS but later a change in the Finance Bill 2020 was announced post covid outbreak wherein DIVIDENDS EARNED FROM REITs WILL BE EXEMPT IN THE HANDS OF THE UNITHOLDERS.
Thus, The dividends received from REIT are tax-free.
2. Short Term Tax (sold within 3 years) is 15% of Gains
3. Long term tax (sold AFTER 3 years) will be at 10% of Gains.
4. Dividends received will be ADDED TO THE INCOME OF INVESTOR AND SHALL BE CHARGED TO TAXED AS INTEREST INCOME
Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH
You are strongly encouraged to consult your financial planner before taking any decision regarding this investment.