Reits now within easy reach, but learn more before you take the plunge
With the minimum lot size reduced, should you consider investing in Reits? Reits are a good way of taking exposure to real estate, but it is important that you understand how they work before you invest in them.
Let’s understand what the new change would mean for you.
The change: Reits are products like mutual funds through which investors can own income-generating properties, such as commercial buildings and office spaces, which they otherwise can’t afford to invest in. Just like mutual funds, if you invest in the initial public offering (IPO) of a Reit, you will be allotted units. Before the change, the minimum lot size of a Reit was 200 units. It meant you needed a minimum investment of ₹50,000-60,000 to purchase a lot, if, say, the price of a Reit was about ₹300 per unit. However, now—although there is limited clarity on the minimum investment required as finalized guidelines are awaited—experts say the minimum investment requirement is likely to apply for buying units in the IPO, but one will be able to buy and sell a single unit of Reit on stock exchanges just like a share.
“We understand that the minimum application amount of ₹15,000 for Reit units is in the case of an IPO. But since the trading lot has been reduced to one unit, investors will be able to buy and sell a single unit of a Reit in the secondary market,” said Michael Holland, chief executive, Embassy Reit.
The new regulation will help increase the investor base and improve the trading volume of Reits.
“The change facilitates access to Reits by a much broader investor base. We started with 4,000 investors, and today we have around 12,000 investors. The three-month average daily trading value (ADTV) of Embassy Reit is about $4.4 million (about ₹33 crore), while that of one of the big listed real estate developers is around $35 million. The developer has a higher trading volume in part because of the single share trading lot size, which in turn leads to a higher number of shareholders and more liquidity. It’s a virtuous circle,” said Holland.
