What is REIT?
REIT or Real Estate Investment Trust is a company which owns, finances and operates income-generating real estates. It accumulates a pool of money to develop the assets and sells them eventually. REITs are generally modeled after mutual funds. It gives an opportunity to all the investors to own a real estate. The REIT allows the investors to invest in portfolios of real estates through mutual funds or exchange-traded funds. The investors get the share of income from the real estates they have invested in. It also helps in getting a fair amount of return from the investment.
REIT was created by the Congress in 1960 for the Americans to earn from income-generating real estates. REIT of all types currently own about 3 trillion dollars in gross assets across U.S. The market capitalization of the U.S. listed REIT are about 1 trillion dollars.
Types of REIT
There are three kinds of REIT:
These are REITs which are used to own, renovate, manage and sell the real estate properties according to their convenience. Generally, in this case, the investors invest in office and industrial real estates, retail, residential and hotel properties.
2. Mortgage REITs
These generally lend money to the real estate buyers or acquiring existing mortgage or Mortgage Backed Securities. The investors generally earn from the interest of the loan that is taken.
3. Hybrid REITs
These are REITs which include both equity and mortgaged properties.
Benefits of REIT
Brings Liquidity for Real Estate Industry
Most of the real estate giants in India are worried about liquidity. Huge funds are invested in a property and then they have to wait for years for recovery through rent or capital appreciation. REIT solves this problem as the original investor can get an exit from his rent-generating property through REIT mechanism. These funds can be then mobilized by the real estate companies in new infrastructure projects.
Flexibility of amount of Investment
People who want to invest in real estate generally hesitate because their savings are not enough to buy a complete property and taking a loan seems to be a riskier option for them. The solution to this problem is also REIT. Since investment in units of REIT is in similar as an investment in shares of a Company so the investors have complete flexibility about how much they want to Invest.
Faster economic growth
Since REIT help to channelize funds from the pockets of common people to the real estate and infrastructure of the country and it also helps companies to monetize their existing property, so all this results in a faster economic development of the country.
India’s Economics of Real Estate
The market size in India for real estate would rise up to 180$ billion dollars by 2020. Real estate sector of India is the second largest employment sector after agriculture.
According to the report of Cushman and Wakefield in December 2016, the REIT eligible projects are about USD 44-53 billion across 7 top cities in India. In a recent move, the Reserve Bank of India has proposed to allow banks as much as 10 percent of their REITs and InVITs. The Housing Property would contribute about 11 percent of the total GDP of the country by 2020. India has been expected to have a growth in the real estate sector because of the policy changes which has made this sector more transparent. Office demand space has been increased by 23 percent in January-March 2018. The government also have contributed to the development of such sectors. It has implemented the concept of Smart City which increases the value of the real estate leading to growth and diversification.
The Securities Exchange Board of India or SEBI has given the approval for REIT, which would help Indian investors to invest in real estate. Keeping in mind the growth of real estate and globalization, the Indian Economy has achieved many milestones and overcome different hurdles. The real estate owners are taking up huge concern and bringing the best real estates which can be set to provide the best return out of the REITs. The Indian market can have about 1.25 trillion USD market capitalization for REIT over the years. Private equity investments have increased by 15 percent in the real estate sector.
Global REIT (A Blockchain Based REIT)
There are a few problems with the traditional form of REIT. It is the properties that cannot bee valued adequately by the investors which can cause them huge amount of losses. Managers who are skilled enough to do the valuation correctly require huge amount of fees which eventually makes investing difficult. In addition, there may be restrictions on the type of property that an investor may like to invest in. The FDI inflows which play a crucial part of the real estate sector is dynamic and can change because of macroeconomic and microeconomic factors. Distribution in REIT is mainly being paid out either annually or semi-annually which makes it less liquid.
Global REIT or GRET resolves the problem by making investment easier and any investor, with any amount of income, can easily start investing it. It aims at creating a global real estate portfolio from which the investors can get a profitable amount of return. It uses Etherum blockchain. It is the first blockchain-based Sharia-compliant REIT that is launched in the market. It facilitates cross-investment potential along with opportunities worldwide. Existing REIT members would like to take the advantage and be a part of the crypto domain. This is to shape the real estate sector worldwide.
The Global REIT is connected with real estates and therefore, makes investment more decentralized. The investors can use free funds to get a higher level of return from these real estates.
In the Global REIT ecosystem, there are only two tokens that are traded, GRET and GREM. The GRET is obtained by the Global REIT ICO and is secured by one of the real estates owned by the start-up. The GRET is based off the standard ERC20. This makes it rapid and cheaper than the traditional REIT. GREM is a token of investments that is used for further development of the Global REIT. Both of these GREM and GRET revolutionize the REIT market, making it more diversified and decentralised. Global REIT follows deep background checks along with all the KYC compliance.
The platform components or the core components of Global REIT are the Asset Management Module, Compliance and Security Module and the Transaction Module. The Asset Management Module views for the asset managers and the investors are different. This module also helps the GRET token to execute which has the smart contracts. The Transaction Module is responsible for executing instructions from all the participants in the network. The Compliance and Service Module gives 24×7 security and also keeps a check on the frauds that can take place
The blockchain technology was used because of its security and anonymous transactions. It is a public ledger where the investments are not centralized or concentrated on one or a few number of investors. It also facilitates in Fund management income. It also gives future access to all its AUM or Asset Under Management. The different Fund Managers can bring in assets which could be given out for the investors to invest in. The need for such a blockchain-based model arises because of the geographic concentration of real estates. It also resolves the problem of financial barriers in investing.