With banks lowering housing loan rates and RBI signalling a downward trend in property prices, investors have a reason to smile. After all, they can now go ahead and buy that coveted piece of property feeling a little less guilty about not making the investment when rates were much lower.

For all those who cannot still decide if or when to press the play button, there would soon be pools of money like mutual funds, called real estate investment trusts (REITs), to invest in.

REITs invest in properties and earn rental income from them, besides the appreciation in the property rate itself.

They could be rolled out by either real estate players who have large rental assets, or by mutual fund houses.

The income earned as rent is given out as dividends.

The properties would be evaluated at regular intervals and accordingly, the net asset value (NAV) arrived at, much like in mutual funds. The NAV, however, would not be declared daily, but annually.

Sumeet Mehta, vice-president, capital markets and investment sales at property consultancy firm Jones Lang La Salle Meghraj, says, "If an investor wishes to purchase one lakh square feet of commercial property for investments, he would need not less than a few crores."

"As a result, he would be putting up his entire money in one single property. He will not be able to diversify by directly investing in the property. The risk will be diversified by investing in REITs as this fund will be investing in multiple properties. An investor can participate in the real estate story and can also diversify his city and product risk by virtue of investing in REITs."

The REIT corpus would go into both commercial and residential property. It may also spread the risk into urban, semi-urban and even rural land, thus curbing losses, if any.

Prakash Gurbaxani, founder & CEO of QVC Realty, says, "It (REIT) allows you to play the real estate at a relatively low risk as even if the property’s value may have declined, the rentals or income from lease would continue and may not fluctuate. Typically, in India, lease agreements are for a 6-9 year period with a lock-in of 3 years. There is also escalation of income built in the lease agreement,"

Lease or rental agreements on commercial properties are usually spread over several years. As a result, REITs would also have a lock-in of a few years.

In the meanwhile, if you are in need of cash and wish to exit, you would have an option to sell the units. This cannot be sold to the REIT issuer as the money has to grow. But, REITs would be listed on the exchanges and units can be sold there.

However, according to Mehta, holding companies have traditionally been trading at a discount to their intrinsic value or NAV. "In case there is adequate interest from investors in REITs and enough disclosures are mandated by SEBI, then the situation could be otherwise. REITs may trade near about their intrinsic value," he added.

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