Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) were launched in India in 2014. Furthermore, the Securities and Exchange Board of India (SEBI) regulates these investment schemes.
What are REITs?
- A Real Estate Investment Trust (REIT) is a type of financial vehicle that owns and manages properties that generate regular income. They are similar to mutual funds. The main objective of REITs is to create regular income and capital appreciation. It invests across real estate facilities such as industrial parks, offices, warehouses, hospitality centres, malls, healthcare centres, etc.
- REITs pool money from investors by providing them with an easy entry point into the real estate market. They are also an excellent diversifying option for your investment portfolio that offers both regular income and long-term capital appreciation. Furthermore, REITs can be listed on the stock exchange.
What are InvITs?
- Infrastructure Investment Trust (InvITs) is a trust that pools money from investors to invest in income-generating assets. The main focus of InvITs is to cash flow over a period of time. They are similar to REITs except that they invest in infrastructure projects such as roadways, transmissions, power plants and other development projects that require time to generate consistent cash flow. Furthermore, they aim to provide a steady stream of income (through dividends) as well as long-term capital appreciation.
- Entities that purchase, manage, or finance revenue-generating commercial properties are eligible to launch REITs (Real Estate Investment Trusts) in India. These are similar to mutual funds, where investors can purchase units of the REITs they want to invest in.
- The REITs can also get listed on stock exchanges. Shopping complexes, hotels, malls, and hospitals are some examples of properties that are eligible for REIT. InvITs, on the other hand, allow investors to pool the capital and hold infrastructure assets that can generate revenue. Some common examples of infrastructure projects eligible for InvITs are highways, gas pipelines, roads, power, and energy projects.
- REITs focus on making real estate assets more accessible to individual investors and increasing retail participation. InvITs focus on making infrastructure investments more accessible to private investors and expanding retail participation in the sector.
- REITs invest in properties like warehouses, apartments, corporate offices, data centres, shopping malls, etc., InvITs invest across infrastructure projects like transmission, roadways, environmental and renewable projects, etc.
- The minimum subscription amount for REITs is INR 10,000 – 15,000. Earlier it was INR 50,000. The minimum subscription amount for InvITs is INR 10,000 – 15,000. Earlier it was INT 1,00,000.
- Lower unit pricing and smaller minimum trading quantities make REITs more liquid. Large trading lot size and higher unit price of InvITs, make them less liquid.
- While InvITs can be publicy listed, private listed or private unlisted, REITs must be publicly listed.
- For InvITs, growth depends on the successful acquisition of concession assets through a bidding process. InvITs comprise concessions where the projects are returned to the authority or rebid post the concession period. On the other hand, REITs own the property leased out and their underlying assets see growth in value over time and have high terminal value. REITs have greater visibility of growth, which can be achieved by redeveloping existing assets, new construction, and acquiring completed leased assets.
- REITs and InvITs are a hassle-free and straightforward way of investing in real estate. You can benefit from the growth of real estate assets without incurring the high costs of acquiring real estate ownership.
- InvITs and REITs are attractive to retail investors, HNIs and also retired individuals who are looking for a steady source of income.
How critical are InvITs for funding India’s infrastructure projects?
- InvITs present attractive investment opportunities and are only expected to take wings given the huge expected government outlay for infrastructure projects. The government had already identified InvITs as a way to attract large institutional long term investors in infrastructure space.
- The Government’s National Infrastructure Pipeline estimates funding requirements of over $1.4 trillion by 2025. Of this, private sector investment in infrastructure is expected to be at least $325 billion. A large portion of this could come through InvITs.
- To allow for capital recycling and further investments under PPP modes, InvITs play a key role in the monetisation of existing projects in some of these sectors (with conducive regulatory frameworks, cash flow profile, and taxation advantage).
- InvIT helps developers release their invested equity and deploy capital in new projects. This could enable them to address the challenge of projects with high capex demands.
- Another advantage of InvITs for companies is that proceeds raised from such vehicles are not counted as debt. Similarly, as the company launching InVIT does not dilute any of its shares in the process, it does not count as equity either.
How to structure
- Start with the similarities and then differences of InvITs and REIT
- Give the importance of InvITs in improving infrastructure projects.
- Mention the challenges faces
- Suggest way forward and connect to schemes