Traditionally, Indians have always loved acquiring property. Most people equate investment with property, or gold. There’s always something reassuring about having an asset that is tangible and can be seen and touched, rather than some notation in a book or a computer entry. There is a huge unmet demand for property in India, so a savvy investor will be able to reap rich rewards.
However, the problem with investing in real estate is that you need large sums of capital. And besides, it’s not particularly liquid. If you need cash urgently, it’s hard to sell off property quickly, and for the price that you want.
These two disadvantages can be overcome by investing a real estate investment trust, or REIT. REITs are like mutual funds that invest in property. A group of investors are brought together by the REIT, which invests in real estate. The investments can be made in variety of properties including houses, flats, warehouses, office complexes, hotels, hospitals and so on.
Real Estate Investment Trust India
The first REIT in India came up in March 2019 when Embassy Office Parks, a joint venture between US private equity firm Blackstone Group and Embassy Group, came out with an initial public offer (IPO).
According to Securities & Exchange Board of India (SEBI) regulations, a REIT in India will be able to invest only in commercial real estate. It can do this either directly through a special purpose vehicle (SPV). The regulations also further stipulate that 80 percent of the amount should be invested in completed and revenue-generating properties. The rest could be invested in property development, corporate debt of the real estate sector, government securities etc.
SEBI rules also stipulate that Indian REITs be listed on the stock exchange and raise funds through an IPO. There’s another SEBI stipulation that will make it slightly harder for retail investors to invest in REITs. That is, there has to be a minimum investment of Rs 2 lakh. Besides, the REIT will have to come up with a minimum offer size of Rs 250 crore.
There are two ways in which a real estate investment trust in India could earn returns. One way is through rental income. Another is through capital appreciation. Since demand for property will continue to grow in the future, investors can earn good returns over time.
Benefits of REITs
The arrival of REITs could be beneficial for investors and the real estate sector as a whole.
• Easier to invest: Even though SEBI has stipulated that investors have to put in a minimum of Rs 2 lakh, this will much lower than the amount needed otherwise to get a toehold in real estate. Properties in the metros cost crores of rupees, and there’s no way an average investor can cough up that kind of cash.
• More liquidity: REIT investments are more liquid since they will be traded on the exchange. So you can get cash whenever you want.
• More funds for the real estate sector: It’s becoming harder for property developers to get the funds for new development. REITs will make real estate investments more broad based and attract a lot of investors, so this will give a fillip to the sector.