Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) were first introduced in the US during the 1960s. In India, REITs and InvITs were permitted to launch and get listed on the stock exchanges in 2014 by the Securities and Exchange Board of India (SEBI).
IRB InvIT was the first InvIT to get listed on the Indian stock exchanges in May 2017. Meanwhile, Embassy Park REIT was the first REIT to get listed on the Indian stock exchanges in March 2019. InvITs and REITs are similar in many aspects and offer a good alternative for investors to diversify their portfolios. However, there are some differences between them which makes both assets unique.
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|Investment Area||REIT invests in real estate properties such as apartment buildings, warehouses, data centers, corporate offices, shopping malls, and other similar areas||InvIT invests in infrastructure projects such as roadways, transmission, renewable projects, and other similar areas.|
|Objective||Making investments in the real estate sector affordable for retail investors and increasing retail participation||Making investments in the infrastructure sector affordable for retail investors and increasing retail participation|
|Income Stability||Highly stable as REITs generally invest in corporate spaces with long-term rental contracts and 80% of REIT assets are invested in income-generating properties. The long-term contract ensures that REIT receives rent regularly for a long period||Stable as they invest 80% of assets in operational and income-generating infrastructure assets having long-term contracts. However, their income is dependent on a lot of other factors such as tariff restrictions, meet projected targets, etc. Relatively less stable than REITs.|
|Regulatory/Political Risks||As REITs hold the real estate properties through a long-term lease or freehold ownership, they are better protected from political or regulatory risks. REITs generally cater to corporate clients and not retail customers leading to a lower political and regulatory risk||Many InvITs invest in sectors related to public welfare (Highways and Utilities) and any delay in regulatory approvals or changes in regulations may put the infrastructure project at risk. In addition, any protest by environmentalists against road constructions or similar problems may pose a risk to the income of the infrastructure project in which InvIT has invested money|
|Liquidity||REITs are more liquid as they have a lower unit price along with fewer minimum trading lots||InvITs are less liquid due to a higher trading lot size along with a higher unit price.|
|Investor Knowledge and Participation||As most investors are aware of the real estate sector, retail investor participation is high. Also, it may lead to better volumes in the future.||As retail investors are less knowledgeable of the infrastructure sector, they may hesitate to invest in InvITs. It may take some time for InvITs to gain acceptance among retail investors.|
|Ownership||REITs generally own the property or have a long-term lease on it||InvITs are involved in infrastructure projects that are returned to the concerned authority or rebidding starts post expiry of the contract period|
|Growth Prospects||REITs have better chances of growth which can be achieved through the redevelopment of existing assets, new construction, and acquisition of completed/ leased assets. REITs can also revise the rents from time to time to match them with rising market costs, allowing them to earn a higher amount of rental revenue||InvIT can achieve growth only when it can acquire concession assets through a bidding process. Also, the revenue rises when the infrastructure asset posts a higher than projected revenue. This may lead to a good capital appreciation of InvIT in the stock market. For example, a toll highway recording huge volume than initially expected|
Both InvITs and REITs are relatively new to the Indian Stock Markets, and their acceptance by investors along with the long-term returns they provide is yet to be seen.
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