Direct Commercial Real Estate Vs REIT: Which Is The Better Investment Bet?

Asma Javed, Vice President, Delhi-NCR Real Estate Company, said, “Commercial real estate has always been a sought-after property amongst high net worth individuals (HNIs) and institutional investors. While investing in commercial real estate provides higher lease rentals, REITs, on the other hand, provide investors with the benefits of real estate investing along with dividend-based income and competitive market performance. While direct investment in commercial real estate can be risky, the risk associated with a REIT is comparatively low as it invests in a portfolio of real estate properties.”

“Many investors who want to tap into the real estate sector compare RIETs to actual real estate. REITs (Real Estate Investment Trusts) are corporations that operate like mutual funds for real estate investments. You can invest in REITs without owning or managing any assets. On the other hand, you can go for direct real estate investment by buying residential or commercial properties,” said Nakul Mathur, MD, Avantha India.

“With direct/commercial real estate investment you can buy a specific property such as an apartment complex (residential) or a shopping center (commercial). Here the investor earns money through rental income, appreciation and profits generated from any business activities. But REITs are an important consideration when building any equity or fixed income portfolio. They can provide additional diversification, potentially higher total returns, and lower overall risk. In short, with capital appreciation. Their ability to generate dividend income simultaneously makes them an excellent counterbalance to stocks, bonds and cash, said Nakul Mathur, MD, Avantha India.

“Investing in commercial real estate is highly liquid which means that if you need to dispose of the property it may take months or even years to do so. This indicates that the investment may be stuck for a longer period than you expect On the other hand, REITs are quite liquid as the units are traded on the stock exchange and you have the flexibility to partially sell your investment if you wish to do so. Thus both types of investments can have many aspects Investing in real estate is an important final decision in itself and it would be a good idea to consult a real estate investment expert before going ahead,” said Asma Javed.

“For non-institutional investors, who typically work with smaller capital pools, investing in REITs is significantly more attractive than acquiring direct commercial real estate,” said Hari Movva, Senior Vice President, SILA. The two major gains made are diversification and liquidity.”

Diversification – REITs typically own multiple properties and in some cases across geographies. It provides diversification against poor performance or increased vacancies in any one asset/location.

Liquidity – Since REIT units are listed on stock exchanges, they provide easy liquidity to investors when they want to exit.

Apart from the above, REITs also benefit from the advantages of scale. The relatively large scale of REITs enables them to attract bigger and better tenants and negotiate competitive rates with service providers like brokers, leasing agents, property managers etc., further said Hari Movva.

In a commercial real estate investment, you can buy residential apartments, or retail space, on a specific property line. Here investors benefit from real estate appreciation, rental income and any businesses that depend on the property. Investing in commercial real estate is suitable for those who prefer a more personal experience and the feeling of returns from buying, managing and selling property, but REITs are a way for investors to diversify their holdings. Thus they are an alternative for investors seeking assets other than stocks and bonds. Investors seeking regular income may find REITs more attractive because they pay regular dividends. Investing in commercial real estate can fetch you assured rent with an interest-free security deposit. While the rental yield tends to increase over the long term, the monthly rent may increase or decrease depending on the given market conditions. The annual lease rent on commercial properties can be as high as 6-7%.

For example Avantha Business Center. This UK based managed office space brand offers non-branded, flexible office space in New Delhi and Gurgaon with advanced IT infrastructure. Their business centers are located in prime business districts of Delhi/NCR providing high visibility and easy accessibility. They also offer professional meeting rooms and conference spaces in various sizes to suit one’s business needs. Avanta’s clients range from leading international corporate businesses to large members of SMEs and sole traders seeking a single office.

Suren Goyal, Partner, RPS Group, said, “A REIT is a corporation that owns, operates or finances income-producing real estate or real estate properties. Modeled after mutual funds, REITs offer a range of options to many investors.” Pool capital. They provide a low-cost way to invest in the real estate market. You can invest in a fund for as little as $500—a much lower entry point than commercial real estate investing. Another advantage of a REIT is that it offers attractive total return potential. By law, REITs are required to pay out at least 90% of the taxable amount to shareholders and a 5% dividend yield or higher is not uncommon. REITs There is potential for capital appreciation as the value of the underlying asset increases.

“Whereas one of the benefits of investing in commercial real estate is the ability to generate substantial cash flow as well as take advantage of several tax breaks to offset the income. While the real estate market can fluctuate- There are ups and downs. As in the stock market, property prices generally move up over time, so you may be able to sell it later at a higher price and of course there is a possibility of price appreciation as well,” Suren Goel further said.

Most buyers of commercial real estate prefer to finance the home with a mortgage or loan; as a result, certain tax benefits are available. But REITs do not offer comparable tax advantages and dividend payments on REITs are taxed as well. In terms of property ownership, investors in REITs are not given ownership title to the property and only receive trust units. In contrast, commercial real estate gives investors the freedom to use the property as they see fit.

Commercial real estate and REIT investing both have their advantages. You can consider REITs for an opportunity to diversify your portfolio with their good returns, comparative safety, stable income and low investment amount. On the other hand, REITs are new in the market and are traded on stock exchanges, that means there is a risk of price fluctuations and market dynamics. Additionally, returns are lower than direct investments in commercial real estate, whereas unlike direct real estate investments, you have no control over returns or performance. property investment. But commercial real estate will benefit more from capital appreciation in the future. Therefore analyze your financial position and investment goals for both the investments and take professional advice before investing.