REIT and InvITs - 3 Key Differences & Types

Wouldn’t it be great if there was a way to generate profits from real estate investment without actually owning the property? With REITs and InvITs, this is now very much possible.With the help of these real estate investment vehicles, developers can now monetize their property and infrastructure assets, while investors can invest in these assets without owning them. But as the concept of REITs and InvITs is new in India, the terms are often used interchangeably by investors. While they do have some similarities, they are definitely not the same.Take a look at 3 of the biggest differences between the two-

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 are divided into two categories- equity and mortgage. The equity REITs are generally launched by entities that manage revenue-generating commercial properties. The entity will take the property on lease from the owner for a fixed tenure. The income generated from the property is then distributed as dividends to the investors.With mortgage REITs, you will be investing in mortgages taken against commercial properties. Investors earn through the EMIs paid by the borrower.As for InvITs, they are also of two types- completed projects and under-construction projects. The majority of the InvITs that are open for the public are in completed projects. Under-construction projects generally have private offers where Institutional investors are invited to invest in the project.

Between REITs and InvITs, the former is known to be more stable from the income point of view. This is because almost 80% of the assets or properties for which the REIT is launched- generate regular income and have long-term leases.But the same is not true for InvITs as returns depend on several factors that impact the tariff scalability and capacity utilization of the infrastructure project.

The launch of REITs and InvITs in India is expected to boost the country's real estate and infrastructure sector. While both have their benefits, it's essential to evaluate both options carefully. Some points to note here are;

• Minimum Investment Amount: The minimum lot value of REITs is set at 50,000, and that of InvITs is Rs 100,000. For this reason, REITs are usually preferred by retail investors.
• Political Risks: InvITs are more exposed to regulatory changes or political changes than the REITs, making the latter a slightly safer avenue for retail investors.
• Liquidity: Due to smaller trading lots, REITs are known to provide better liquidity than the more thinly-traded InvITs due to their larger lots size.

Whatever you choose between the two, do remember to evaluate them on the basis of ratings received from autonomous bodies that rates these trusts based on the quality of assets, cash flows, and other factors. Moreover, as these investment vehicles are more difficult to understand as compared to standard mutual funds, you should consider professional assistance before making an investment decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.