I am 46, and own a house. Should I invest in a second property to generate rental income, or should I consider REITs instead?
Vidya Bala Co-Founder, PrimeInvestor.in: If you look at the rental yields (rent divided by the total cost of buying a house including interest on loan), it is pretty low at 3-4%. REITs may give you slightly higher returns at 6% or more but are not guaranteed and can vary. REITs are quasi-equity instruments and come with equity risks. Much of their income comes from rent from commercial properties. So depending on your risk profile and need for fixed cash flow (whether you really need a fixed sum every month), you would need to make a call. If your only need is income, you can also use options like RBI Floating Rate Savings Bonds that deliver superior returns.
I’m interested in property investment but haven’t started due to high costs and limited knowledge. I recently came across REITs and InvITs, which are regulated by Sebi. From a retirement and long-term perspective, are REITs and InvITs suitable for capital appreciation and portfolio diversification for retirees?
Prableen Bajpai Founder, FinFix Research and Analytics: Real estate investment trusts (REITs) allow investors to earn a share of the income generated through commercial real estate ownership without owning or managing properties directly. These offer low entry costs, diversification, and the potential for regular income and capital gains. However, the investment options in REITs in India remain limited, with only a few players currently in the market. Income from REITs is taxable, depending on the type—dividends, interest, capital gains or rental income—and may be taxed at the REIT or investor level. For example, If the SPV opts for the concessional tax rate regime under Section 115BAA, dividend income is taxable for unit holders at applicable slab rates. However, if the SPV does not opt for the concessional tax rate, the dividend income is exempt for unit holders. Infrastructure investment trusts (InvITs) work similarly but focus on infrastructure projects. They aim to offer steady income through regular distribution. Like REITs, their tax treatment varies by income type. In short, both REITs and InvITs can be a part of your retirement portfolio depending on your risk appetite as these will carry market risk. Other factors (sources of income, current portfolio, monthly inflow need) will need to be considered to arrive at the percentage of exposure. The Nifty REITs and InvITs Index can give you a good idea about listed companies from these two spaces in India.
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