In the current scenario, investing in real estate sector has come up across major changes. Today, investors in India are exposed to various kinds of investment types where they can get better ROIs too. However, there are a few distinct ways to go about investing in real estate and they are through REIT and real estate crowdfunding.
While the term REIT is probably popular and known to all experienced real estate investors, crowdfunding is still gaining momentum in the Indian realty sector. However, an investor is curious about both and wants to explore what has been tried and tested format in other markets.
So with this blog, we will inform our readers about REIT and Crowdfunding and the key differences between the terms:
REIT-Real Estate Investment Trust, are actually those trusts that own and operate a portfolio of income-producing real estate. In this type of investment option, investors can put their money in large-scale properties and is open to everyone for buying stocks. Most REIT companies trade on major stock exchanges, and hence offer a number of benefits to investors.
Real Estate Crowdfunding
Crowdfunding or better known as Peer to Peer Lending is an investment technique which is usually done on an online platform. There are many different web portals that an individual can use to help raise funds for their project, idea, business, non-profit, or invention. These crowdfunding sites are a great way for someone to get the investors that they need, without the hassle of going to banks or project financers. However, Real estate crowdfunding is yet to expand its legs in India as it is still an unorganized investment platform.
Major difference between REIT and Real estate crowdfunding
- In REIT, investors can put their money in large-scale properties and is open to everyone for buying stocks. Here, investors only know the portfolio and not the details of properties. However, in real estate crowdfunding, individuals have an idea of what they are investing in; for example, it can be a property across the street, or one halfway across the country.
- While, crowdfunding has more flexible underwriting norms, that makes it a high-risk and high-return proposition. On the other hand, due to an organized and strict background, REIT has more tough norms.
- REIT offers investment on established income producing assets, while crowdfunded projects are mostly newly-launched and start-ups that need early stages of funding.
- In REIT, usually many properties are pooled together and the investment is listed and can be transacted, explains a realty expert. Crowdfunding, on the other hand, is mostly done on a single project. It is also not traded on any exchanges and thus is not as liquid as a REIT investment.
- ROI in real estate crowdfunding is more as compared to REIT. Yet, the risks are also much higher in a market like India where access to right to information is challenging and transparency is lacking.
- Finally, crowdfunding is very different from REIT in terms of operational methodology, nature of investable properties, legalities involved and the alliance between the lender and borrower.
Moreover, crowdfunding is still not officially recognised in India, unlike other developed nations. A realty expert predicts that once approved and regulated, crowdfunding has more potential to become more popular than REIT and other organised investments.