Earn rental income from real estate without buying land or house! Start investing with just ₹500, know the complete formula of REITs and Frax

Traditionally, investing in real estate in India meant a hefty capital investment of at least ₹30 lakh to ₹1 crore, a 20-year home loan from a bank at high interest rates, registry and stamp duty hassles, and then the endless hassle of finding a tenant and maintenance. For those who are middle class or do not have lakhs of rupees in lump sum, the property market has always been out of reach.

But now new financial instruments in the Indian financial market regulated by SEBI have democratized real estate investment. Now you neither have to buy a plot, nor book a flat in any builder’s project, nor have to run after a tenant. You can buy stake in the country’s largest Grade-A IT parks, commercial complexes and premium shopping malls with as little as ₹300 to ₹500 and get regular dividends and rental income in your bank account every quarter.

REITs work just like mutual funds invest in stocks. A REIT company buys fully built-up commercial office space and retail malls in major cities of the country (e.g. Bengaluru, Mumbai, Hyderabad, Noida, Gurugram) by raising small amounts of capital from investors and renting them out to premium corporate companies (e.g. Google, Microsoft, TCS, Amazon):

1. SEBI’s 90% cashflow rule: As per the stringent rules of the Securities and Exchange Board of India (SEBI), any REIT is required to distribute at least 90 per cent of its net rental income (Net Distributable Cash Flow – NDCF) to its unitholders in the form of dividends, interest or capital return.

2. Listed in stock exchange: Units of REITs are listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) like ordinary shares. You can also buy or sell one or two units from your existing demat account on any trading day.

There are currently four major SEBI-registered REITs actively trading on the Indian stock exchanges:

• Embassy Office Parks REIT: The country’s first and largest REIT, which owns Grade-A tech parks leased to Fortune 500 companies in Bengaluru, Mumbai and Pune. (Unit Price: Approx ₹380 – ₹410)

• Mindspace Business Parks REIT: Of. Promoted by Raheja Corp, which has premium commercial hubs in Mumbai MMR, Hyderabad and Chennai. (Unit Price: Approx ₹340 – ₹370)

• Brookfield India Real Estate Trust: Backed by global giant Brookfield, which has large campus assets in NCR, Mumbai and Kolkata. (Unit Price: Approx ₹260 – ₹280)

• Nexus Select Trust: The country’s first pure-play retail (mall) REIT, which owns 17 world-class shopping malls across 14 major cities in the country. (Unit Price: Approx ₹135 – ₹145)

That means even if you have a budget of only ₹500, you can still become a co-owner of the most modern commercial infrastructure in the country by purchasing 3 units of Nexus or 1 unit of Embassy/Mindspace.

When investing in REITs, the investor gets profits from two different sources:

1. Regular Quarterly Payouts: Net cashflow of around 6.5% to 7.5% per annum is directly credited to your bank account in the form of dividends, interest and capital repayment.

2. Capital Appreciation: As the market value of land and commercial buildings increases and lease rents increase by 10% to 15% every 3 years, the exchange price of the REIT’s units also increases (historically 4% to 6% annually).

If both are combined, the investor gets a total annual return of 11% to 13% in the long term without any hassle, which is three times more than any residential rental.

Recently SEBI has decided to increase transparency in the real estate sector. SM REITs (Small and Medium REITs) Rules have been notified. Under this, fractional ownership platforms for individual commercial properties, warehouses or hospitals with a value of ₹50 crore to ₹500 crore have been brought under the purview of SEBI.

While earlier there was a minimum requirement of ₹25 lakh to buy fractional property on unregulated platforms, under SEBI’s new SM-REIT framework the minimum ticket size has been reduced to just Rs. ₹10 lakh Has been done. This has become another transparent option for investors who want a direct partial stake in a specific prime warehouse or data center.

1. Open Demat Account: If you already have a demat trading account with Zerodha, Groww, Upstox or any bank, then you do not need a new account.

2. Search in the search bar: Go to the search bar of your broker app and type the name of any listed REIT (e.g. EMBASSY, MINDSPACE, BIRET or NXST).

3. Select number of units: Click on ‘Buy’ like a normal share. If you have ₹1,000, you can buy 2 to 3 units as per your choice.

4. Set up monthly SIP: The best approach is to buy REIT units worth ₹1,000 to ₹2,000 on the 1st of every month, just like you do SIP in mutual funds. Within a few years you will have a large commercial real estate portfolio that will generate handsome passive income every three months.

The payouts from REITs are divided into three parts: dividends, interest and capital repayment (SPV debt amortization).

• Dividend: In most cases, if the concerned SPV has not opted for the new tax regime (Section 115BAA), the dividends pass tax-free in the hands of the investor.

• Interest: Tax is taxable as per the investor’s normal income tax slab.

• Capital Gains: If you sell units after holding them for more than 12 months, long-term profits above ₹1.25 lakh are taxed at the rate of 12.5%.

what’s the risk? Since it is dependent on commercial real estate, if there is a severe recession in the IT sector or economy in the country and the occupancy rate decreases, there may be a slight decline in the rental income. However, most lease agreements come with a long lock-in period of 5 to 9 years, preventing any sudden shock in income.