Investing in real estate with REITs

Markets welcomed the Embassy REIT (Real Estate Investment Trust) offer last week. It got an overwhelming response from the investors and on the final day of subscription, the offer was fully subscribed. So, should you get hands-on the same or just ignore and wait for some other REITs to step into the market?

What is REITs? Real Estate Investment Trusts is similar to mutual funds wherein they pool the money from investors and invest in their real estate portfolio. The introduction of REITs has provided an opportunity for investors to have real estate exposure with a somewhat low-ticket size. Though this won’t be suitable for most of the retail investors as the minimum trading value of Rs. 1 lakh per lot. However, REITs can prove to be a means to further diversify your investment portfolio. What are the things that you must be aware of before investing in REITs?

With real estate, liquidity is a major concern as they are considered to be largely illiquid. Though when it comes to REITs, they are somewhat liquid as compared to the actual property as these can be liquidated by selling units in the secondary market. Being close-ended, these are not as liquid as open-ended mutual funds. Just like mutual funds, REITs offer no guaranteed returns. Also, they have just come to the market and there is no history available to gauge their performance as of now.

Though you can consider investing in them if you have a provision for all your needs and still have a cash flow which you wish to invest and diversify your overall portfolio for wealth creation. Still, these can prove to be a bit risky proposition, so conservative and moderate risk takers should stay away from the same. However, aggressive investors can invest in REITs for enhancing their portfolio diversification.