Decoding the future outlook of REITs in India

In India, REITs are making a big splash into the Indian real estate industry at the right time. It was one of the most popular financial instruments globally introduced in India to monetize lease-returning assets, which later served to raise investment capital. 

The need of Real Estate investment trust (REIT) legislation

The Indian real estate market has undergone significant changes in the past decade, moving from traditional loans to structured financing, private equity, and initial public offerings. Due to its strong economic fundamentals, significant growth potential, and favourable demographics, foreign investors and global PE majors have shown considerable interest in India’s real estate market. Thus, a rise in the share of structured funding in the real estate investment prompted the emergence of alternative investment vehicles.

In December 2007, the Securities and Exchange Board of India (SEBI) released the first draft guidelines of the Real Estate Investment Trust (REIT) legislation in India. Several amendments and new policies have emerged since then. These developments led to identifying several critical success factors for REITs in the country – covering three key areas: regulation, market performance, and investors. 

Revised REIT guidelines

As a whole, the government and SEBI have been active in encouraging Indian investors to take advantage of the REIT route. Due to demand for more REIT listings, the guidelines have continuously been revised. These include:

  • Inclusion of insurance companies and mutual funds for ‘strategic’ investors.
  • SEBI could also ease the barriers for REITs so that retail investors can participate.
  • It is now possible for promoters with 25% of voting rights to increase their stake by up to 10%, which previously they could only increase their stake to 5%.
  • Investors are exempt from the income tax on dividends if the REIT SPV does not opt for the concessional tax rate.
Current investment environment and the effect it has on REITs

In the wake of the unlock period, business sentiment has gradually improved, which has led to the resumption of decision-making processes. According to some surveys conducted with the current investor, the study found that the availability of liquidity remained available by conservative financing and ample dry powder in private equity. However, most investors claimed that they were delaying decisions or prioritizing income security in the short term. 

REITs future outlook
  • After India’s first REIT’s success, the government decided to launch a second REIT in the country – Mind space Business Parks REIT backed by K Raheja Corp and Blackstone. It has a total area of 29.6 million square feet. Mumbai, Hyderabad, Pune, and Chennai represent the office REIT portfolio of over 5 million sq. ft. 
  • Further, REITs in India are likely to incorporate various asset classes over the longer term.
  • In addition to Covid-19, advances in Big Data, Industry 4.0, and the Internet of Things have accelerated the adoption of cloud-based services. These will lead to increased demand for data centres. 
  • Also, several global and domestic players will be introducing quality spaces over the coming quarters to attract investment in the country’s industrial and logistics land. In the long term, it may be possible to create a public sector REIT given that some PSUs may unlock their land holdings by monetizing them.

In the end, we believe that RIET will make a big splash in the Indian real estate market. To sum it up, it is a great investment opportunity for Indian developers.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

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