Challenges similar to mutual fund industry can be expected, say experts
formation of Real Estate Investment Trusts (REITs) will help in expansion of the quality real estate in India, besides giving developers another instrument to execute their projects. REIT is going to become a reality next 12 months after recent decision of market regulator SEBI.
These listings will provide retail investors a good and an entirely new opportunity to participate in real estate’s growth story in India. This instrument has the potential to attract institutional and retail investors alike because of its inherent nature to provide regular dividends at relatively low-risk levels as compared to other investment schemes in place.
“Since such projects are often office buildings or shopping malls, they have already been developed and have tenants, so their income stream is relatively easy to predict. As the value of these projects increases, REITs will hold them for a long term and not trade in and out of real estate. As for the yields, the rental yield in commercial asset class across the country is usually in the range of 8-11%,” said Anuj Puri, Chairman and Country Head JLL India.
It will be beneficial for people investing in REITs because the preferred investment will be in commercial developments, specifically in highest quality or high end office spaces like tech parks, due to the high rents in this asset class. To curb risk currently only 20% of the REIT amount can be invested in constructing new projects or development. The remaining 80% of the fund’s assets must be invested in income-producing property, which will endure higher returns for retail investors just like one gets from investing in mutual-funds currently. The trust will be of major benefit for the city because the commercial real estate sector is picking up and has huge potential for growth.
recently published report by Colliers International has put Bengaluru at number one position when it comes to commercial leasing in the country. Bengaluru remained on a high growth trajectory and maintained its leading status among the key cities by retaining a 31% share followed by Delhi-NCR, which represented 18% of the total occupier demand.
“If the capital value appreciation for residential property is not taken into account and only the rental yields of both residential and commercial asset classes are compared, yields in the former stand much lower at 2-4%. In commercial developments, yields combined with capital value appreciation over the recent years have been better off than residential properties,” said Anuj Puri.
Retail investors are nonetheless excited at the new and easier real estate investment opportunity that REITs would open up for them.
Clarity on how big or small the ticket sizes turn out to be for them would emerge only after the first two or three REITs have been listed.
The REIT potential in India is huge. Currently, around 229 million sq. ft of office space is REIT-compliant. Even if 50% of this space were to get listed in the next few years, we are looking at a total REIT listing worth $18.5 billion. As India’s of commercial assets grow, it presents great opportunities for REITs.
HOW WILL IT HELP THE COMMON MAN?
l Retail investors have good and an entirely new opportunity to participate in real estate’s growth story in India.
l It has an inherent nature to provide regular dividends at relatively low-risk levels as compared to other investment schemes in place.
l This curbs risk to only 20% of the REIT amount can be invested in constructing new projects or development.
l As India’s stock of commercial assets grows, it presents great opportunities for REITs – and for their potential retail investors
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