REIT or Real Estate Investment Fund is a company which owns, finances and operates income generating real estates. It accumulates a pool of money to develop the assets and sell them eventually. REITs are generally modelled 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 a mutual fund 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 US. The market capitalization of the U.S. listed REIT are about 1 trillion dollars.
**capitalisation in million dollars.
There are a few problems with the traditional form of REIT.
It is that the properties cannot be valued adequately by the investors which can cause then huge amount of losses. Managers who are skilled enough to do the valuation correctly require a 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 plays 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
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 when it functions. 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 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 centralised or concentrated to one or a few numbers of investors. It also facilitates in Fund management income. It also gives future access to all its AUM or Asset Under Management. The need for such a blockchain-based model arises because of geographic concentration of real estates. It also resolves the problem of financial barriers in investing.
How will it benefit the economy?
As financial barriers are removed, more capital flows would be expected. FDI and FPI would gradually increase. The Global REIT is connected with real estates and therefore, making investment more decentralized. The investors can use free funds to get a higher level of return from these real estates. As a large portion of the investors would be confident to invest in the country, this would lead to economic growth and enhance stability. The key factor of such a motive is to induce more and more people to the organised financial sector. Financial inclusion would be benefitted as many people would have to access their bank accounts to invest in such financial instruments. The different Fund Managers can bring in assets which could be given out for the investors to invest in. On the other side, the real estates would bring in more profits by increasing its liquidity. This would in turn bring in an organised market for trading on Real estates. All these factors would lead into good governance and eventually will lead to economic development for the economy.
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