SM REITs in sachet size: 5 things retail investors must know before investing in real estate through SM REITs Buying and selling can be done through NSE or BSE and units will be held in demat accounts, similar to equity trading. SM REITs has democratized access to real estate investments for millions of Indians
Shiv Parekh
Founder and CEO, hBits.
Financial regulator, SEBI, recently issued detailed regulations for listing small and medium real estate investment trusts (SM REITs). I believe this is a watershed moment for the real estate industry, as SEBI has essentially shattered the traditional belief that real estate investments are only for the rich. It has brought the real estate industry under the sachet economy.
A Jefferies report stated that as of February 2024, 66% of Indian households had invested in real estate and gold which clearly showcases the preference among Indians for physical assets like real estate. With investment ticket size now reduced to as low as Rs 10 lakh, SEBI has opened the door for wider sections of Indian retail investors to participate. Real estate investment is now more affordable than ever before, especially for the great Indian middle class.
So, how does sachet economics work in SM REITs?
An Anarock report states that average housing prices have increased between 13 and 33 percent across seven major cities over the last three years. On the other hand, in commercial real estate markets, prices have appreciated by almost 15 percent over the last three years. If a middle-class retail investor wants to enter the residential property market in Mumbai, he or she will have to spend at least Rs 70-80 lakh and Grade A commercial real estate is most certainly beyond the investor's reach.
Given this context, the regulations for SM REITs will now allow investors with a minimum cheque size of Rs 10 lakh to start investing across both, residential and commercial properties. Further, it is even more convenient as investors will be able to buy and sell through NSE or BSE and the units will be held in demat accounts just like equity trading. SM REITs has truly sachetised real estate investments for Indians and democratized access for millions.
A quick primer on SM REIT sachet economics:
1.Tangible Asset: Unlike other investment products, real estate investments provide tangible property. The investment is completely backed and secured by hard assets. All platforms provide a detailed due diligence report about the property, and therefore, as a practice, investors should read the report thoroughly to understand the asset.2.Assess your risks: For commercial properties, investments are mostly made in pre-leased properties, which are far less risky than under-construction assets. The tenants are also well-reputed mid-to-large organisations, which further reduces the risks of rental default.3.Understand the return potential: Investments in SM REITs will provide two types of income generation opportunities for any investor i.e., rental yield and appreciation. Across the top seven cities in India, rental yields across residential properties range between 2 to 3 percent, while it is significantly higher in commercial properties, typically ranging between 8 to 9 percent. As per a joint report by NAREDCO and KPMG, the Indian real estate sector is poised to grow with a CAGR of 18.7 percent between 2020 and 2030. The market size is expected to reach $1 trillion by 2030 with the real estate sector projected to contribute 15% to the GDP. 4.Suited for retirement goals: SM REITs can be a part of your retirement plan. It provides a monthly cashflow to investors and when the concept of time value of money is applied, the real yields turn out to be even higher. If an investor ever wants the money or wants to exit, he or she can do it anytime by placing a sell order on the platforms.5.Know the tax implications: The taxation for SM REITs is not at all complex; in fact, it is similar to other investments including REITs. Short-term capital gain tax (STCG) of 15 percent is levied if the investment is sold in less than a year. And a 10 percent long-term capital gains tax (LTCG) is applicable on investment held for more than one year.
Mid-income earners have played a pivotal role in the rise of the Indian mutual fund industry as they continued to increase their exposure through Systematic Investment Plans (SIP), and the same group is also essential for charting out the growth of Indian real estate. SM REITs and sachet economics provide them with the perfect opportunity to participate in what will certainly be a great success story in the near future.
(The author is Founder & CEO, hBits)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
