REITs will bring a revolution primarily in the commercial real estate market in India. A REIT can be invested in any rent yielding Real Estate like warehouses, apartments, shopping malls and mortgages other than just office spaces. As per the SEBI guidelines minimum 90 percent of the REIT capital should be invested in rent yielding assets with minimum 3 years lock-in which clearly indicates the inclusion of office spaces and warehouses as the primary asset class. Therefore, REITs will bring in huge changes in the office space and warehouse market.
REIT may be new to India but globally it’s a success story. Also, India has indirect exposure to REIT properties like Ascendas Investment Trust, Maple Tree Investments and Religare Healthcare Trust who are listed in Singapore but has property holdings in India. With government waiving off the dividend distribution tax (DDT), REITs have become even more attractive for investors.
Traditionally, developers had to raise money through debt for construction and land acquisition activities, but with the entry of REITs, the burden of debt will reduce and help in more positive cash flows, thereby, offering substantial financial liquidity to developers as a whole. REITs also offer a quick return on capital for the developers with faster rate of growth. In India, we have large developers like DLF, K. Raheja, Embassy, Panchshil, Bagmane, RMZ who may soon be in the race to float their REIT with backing from international funds. Blackstone, in particular, has been aggressive in investing with developers to create rent yielding portfolios. The recent transaction with Salarpuria Sattva in Hyderabad was one such investment. Such investments are proof that India offers to be a lucrative market for REIT investments and with government’s mission of 100 smart cities in the pipeline, REIT will have a lot to offer in terms of capital generation for economic development of these cities in the long run.
REITs will open the commercial property market to local retail investors which so far has been out of their reach because of huge capital requirements. Through a REIT, one can invest as low as INR 2 lakhs into a property with an MNC like IBM, Microsoft or Google as tenant and enjoy their rentals as income. The REIT regulations have gone through a series of amendments in the last couple of years. The government also has given a fillip by removing the DDT. Today, a REIT becomes an attractive investment for investors as it offers a steady income along with property appreciation. Moreover, RBI has allowed banks to invest in REITs which will further instill confidence in REIT investors. As an investor one can always prefer REIT over a government bond, private NCD, corporate bonds, etc. as it offers fixed dividends and property appreciation which are measureable and controlled by REIT regulations. Also, REIT has to be compliant with regulations laid down by SEBI that makes it a safer investment compared to mutual fund or an equity investment. REIT is an investment that can also be part of one’s retirement investment portfolio that offers stable returns.
In a nutshell, Indian investors, institutional and retail alike are eagerly waiting for REITs to hit the market and add it in their investment portfolio.