REITs As An Attractive Asset
Outlook Money|September 2020
REITs As An Attractive Asset
This derivative instrument with underlying assets in realty offers stable rent-yielding cash flows
Vishav

Real Estate Investment Trust (REIT) could be a viable alternative to traditional investment, with falling interest rates, diminishing debt returns from asset-backed investment instruments, coupled with threat of inflation and drop in income.

REITs are derivatives that own or finance real estate assets in a range of properties and earn a return of 12-15 per cent. Of these, 6-7.5 per cent is fixed (based on rental income) and the balance is through market escalations.

While REITs have existed for the past 60 years, and are now a $2 trillion asset class globally, India saw its first REIT in April 2019 when Embassy Office Parks REIT IPO got listed on the stock exchange and paved the way for retail investors to participate in commercial real estate. More recently, Mindspace Business Parks REIT IPO got listed on the exchange early August, only the second REIT to be listed in India.

According to a study by Savills India, a premier professional property consulting firm, ever since the IPO and listing in 2019, Embassy Office Parks REIT had shown an appreciation of 8 per cent (at the end of Q1FY21), reaching a maximum appreciation of around 50 per cent in the pre-COVID phase. On the other hand, Mindspace IPO got oversubscribed by 13 times and got listed at an 11 per cent premium.

“It is just the beginning for REITs in India and with increasing clarity in regulations, significant improvements in Ease of Doing Business rankings, and strong rental performance in commercial real estate, the REIT journey would only accelerate further,” says the “India REIT: A Potential Investment Window” report by Savills India. It adds that despite the COVID bump, REITs have a lot of potential in the Indian market owing to its saturation in foreign shores.

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September 2020