INSUBCONTINENT EXCLUSIVE:
Indian investors keen on real estate as an asset class are on the cusp of getting a new investment option in the form of REITs, modelled on
the lines of mutual funds
This comes as a new and sophisticated investment option for the real estate market, which has been a traditionally favored asset class for
most investors.
On Monday, Embassy Office Parks--the joint entity of the US private equity major Blackstone Group LP and realty developer
gained favor and popularity over the last nearly six decades since it made its debut in the US, Asia has caught up much slower, with the
first REIT in Japan in 2001
This is now a $2 trillion asset class globally as it has established itself across over 35 countries including UK, Singapore, Australia,
Germany, Canada and Finland.
India is now set to join this club nearly a decade after the idea was mooted first time in 2007.
Despite being
a traditionally preferred investment, only few could actually go ahead and invest as the entry barrier remained very high due to expensive
With REITs, investors with a judicious and conservative appetite can also invest into the property market with minimum investment of Rs 2
lakh, which is far more economical than buying a property.
REITs are universally accepted by global institutions and individual investors as
product that provides benefits of liquidity, transparency, diversification, regular dividends and performance as against owing properties
directly.
Investors prefer REITs as the trusts are required to pay out majority of their earnings as distributions to unit-holders
Indian regulations expect REITs to pay out 90% of distributable cash flows and they need to have at least 80% of their assets be completed
relatively superior returns when compared to other asset classes like equities or fixed income instruments.
Over the last 20 years, the
NAREIT All REIT Index has outperformed the SP 500 Index by nearly 4.5%
Reports have shown that within their respective markets, specific REITs have outperformed the broader equity indices by a substantial margin
from the time they went public
REIT earnings have been less volatile than the broader SP 500, particularly during economic downturns, resulting in higher cumulative
earnings over the last 22 years.
The process, which started much ahead of the capital market regulator SEBI notifying the regulations
institutional investors have already started increasing their exposure to commercial office assets over the last few years in the backdrop
of impending introduction of REITs.
The proposed REIT listing will attract more institutional interest in Indian real estate as this would
provide them a major liquidity avenue
Finally, the landmark event would be a beginning of ensuring real estate works for investors and also provide a much-needed push towards
institutionalization of property market in the country.
(The views expressed are solely of the author)
