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Investor’s Guide to India’s foremost Real Estate Investment Trust

March 29, 2019

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The listing of India’s foremost REIT (Real Estate Investment Trust) by Blackstone-backed Embassy Group is now a reality and it is good news for the cash-starved Indian real estate sector.

In a couple of days, any interested property buyer even with a small appetite, perhaps as petite as Rs 2 lakh, can fulfill his dream of investing in a commercial shop for sale in Noida. What this means is that one can achieve a property portfolio of his own with a much lower amount.

BRIEFING REIT

Real Estate Investment Trust is the investment carrier that for the sake of regular returns – own, work and deal with a portfolio of properties that are income-generating. The properties that fall under REIT include – commercial properties, office spaces, etc. that can produce unfaltering rental income. They will work like shares or mutual funds.

In keeping with the current REIT guidelines, company’s assets close to 80% must be capitalized in completed projects and just 20% will be in equity shares, under-construction projects, cash equivalents, money market instruments and other property activities. To guarantee a regular income to the buyers, companies are mandated to dispense at least 90% of the net distributable cash to the buyers at least two times every year.

IN WHAT MANNER WILL REITS HELP THE INDIAN REAL ESTATE INDUSTRY?

At present, property developers lay themselves open to huge capital consumption, specifically in commercial real estate – on land, property construction, interiors and so on, and all this invested money remain locked, even after the project is complete until it creates returns to earn back the initial investment. Because of REIT, both private equity funds and the developers can exit from their finished projects and pay attention to the development activities that also has a different risk return profile. REITs make it possible, as they have the capacity to improve the cash flow in the real estate sector and help pull-in investment from investors both national and international. REITs additionally enable developers to partially exit from the property while the entities listed on the exchange will keep them up-to-date with the basic asset value, and aid in fostering funds at a better valuation.

WHAT TYPE OF PROPERTIES CAN BE INCLUDED UNDER REITS?

Commercial real estate – Grade A properties across big cities like – NCR, Bengaluru, Pune and Mumbai have relentlessly mounting attention and awareness from investors and occupiers. Also, vacancy percentages have been decreasing in prime regions.

As per the data analysis from the past two years – after demonetization, GST and RERA in 2017 – the supply of commercial real estate declined about 24% across the top seven cities. The last quarter of 2018 (after the news of REITs came in the market) the commercial real estate supply saw a jump of 21% with major contributors remain the office spaces in the top seven cities.

WHAT KEPT AWAY FROM REITS?

Following the footsteps of developed global markets, Indian residential real estate is not included under REITs. In keeping with the view of the experts, lack of rigorous and comprehensive residential rental policy is the reason behind this exclusion. Besides, low returns, the proposed taxation structure and negative hype are also the chief contributors that made Indian residential sector to lose candidature for REITs.

REITS EFFECT ON CO-WORKING SPACES

The increasing development of co-working spaces will foil and act as a catalyst for the expansion of institutional investment in Indian commercial property industry. And as the industry says, when there is an institutional investment in the commercial office spaces, it is likewise the responsibility to cater to the needs of their big and small investors. Hence, developers are working hard to get themselves listed under REITs, so they have better exposure and receive a better response from the investors.

Bottom Line – Commercial real estate, be its shops, office spaces or co-working office spaces, all are expected to dominate the REIT listings. Hence, it is a good opportunity for all the investors to expand their property portfolios.

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