Investors in India's first REIT (real estate investment trust) by Blackstone-backed Embassy Group can expect 14 per cent returns over a five-year horizon, making it a more lucrative asset class compared to debt funds, fixed deposits and gold.
Embassy Office Parks plans to raise Rs 4,750 crore through its 33 million sq ft commercial portfolio following the listing next week.
"In India, the projected five-year returns on commercial assets is an optimistic 14 per cent largely because Grade A commercial real estate has been on a protracted winning streak since 2017. Commercial real estate withstood the vagaries of the various reforms much better than the residential asset class," says Shobhit Agarwal, MD and CEO of Anarock Capital.
While debt funds are known to give about 10 per cent returns over a five-year horizon, the figure for fixed deposits is seven per cent. And although stock markets can also generate returns upwards of 15 per cent during a bull run, the associated risks are very high. REITs are a more stable investment option.
For Smaller Investors
In the US, smaller investors account for 25 to 30 per cent of REIT participation from 50 per cent about a decade ago. "In India, we can reasonably start with at least 15 to 20 per cent of participation by smaller individual investors. All of this certainly bodes well for both FIIs and smaller investors focused on REITable commercial real estate," Agarwal adds.
REITs or real estate investment trusts work like a mutual fund by pooling funds from investors and investing them in rent-generating properties, mostly commercial (office, shops, malls and hotels). SEBI requires Indian REITs to be listed on the exchanges to make an initial public offer to raise money. The minimum subscription amount for REIT has been reduced from Rs 2 lakh to Rs 50,000, making it easier for small investors to participate.
Agarwal says for retail investors in India, the listing will unveil more robust investment avenues. "Also, depending on its success, REITs could further percolate down to other asset classes namely retail, logistics etc. which will not only bode well for the overall real estate sector in the country but also entice investors to penetrate into other niche segments," he added.
Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE, says India offered major advantages such as a wide variety of quality assets, sustained government support in easing regulations, a wide investor base, and opportunities for capital appreciation, among others.
Moreover, office segment has been growing fast in the Indian real estate, with leasing touching a record high of 46.8 million sq ft in 2018, says a report by Knight Frank India. This makes the sector attractive to investors.
Magazine says globally, REITs have a proven and successful track record in several Asian countries such as Japan, Singapore, Malaysia, Thailand, Taiwan, South Korea, and Hong Kong. "In 2017 alone, total acquisitions undertaken by REITs in APAC crossed $20 billion, with an approximate share of 15 per cent in the overall commercial real estate acquisitions undertaken in the region," he points out.
"In the first half of 2018, REIT acquisitions touched $10 billion, accounting for a share of 17 per cent in the overall investment volume in the region during the period," he adds.
REITs are also likely to be more successful than infrastructure investment trusts or InvITs due to the difference in the two investment options. Capital appreciation in Invits is limited as assets like roads, do not appreciate with time. However, cash flows are certain. But in REITs, there is also capital appreciation of assets over a period, ensuring a steady cash flow for investors.