In 2017, a report by the Reserve Bank of India stated that Indian’s invest 77% of their savings in Real Estate and only 5% of it is invested in assets like shares, bonds etc.The Indian obsession with investing in Real Estate dates back to 1995,but Real Estate Investment Trusts (REIT) are the players which have flipped the coin in recent times.
BUT WHAT ACTUALLY ARE THEY?
Think of a mutual fund,which pools money from many investors to invest in different assets for returns. Similarly, a REIT is a listed company that would pool money and invest in property for returns.Done on a large scale,where properties are leased or let out and the company earns rental income. This income is then deducted with managerial expenses and what left is the dividend you earn.
THE GROWING INDIAN OBSESSION OF REIT
Although the market of REIT’s is better globally developed, but India’s growth trajectory has been quite consequential due to investor confidence.
What is the reason of this increased confidence?
1) Let’s talk about most important factor,the return on investment. When you compare it to assets like mutual funds and fixed deposits,a REIT would give you an annual return of 7-8% which is higher when compared to it’s minimum investment amount.
2)Secondly,unlike the traditional unsecured markets,REIT’s are regulated under the norms established by SEBI,which is why these days it attracts a broader spectrum of buyers.
3)The capital appreciation on an investor’s property gives an even higher return to the initial investment. Think about big IT hubs like Mumbai and Bengaluru, the latter being the most popular real estate giant. Now the large office spaces that will be leased out here would give maximum returns because of a higher demand and a lesser supply.
4)Even the government support to these trusts is conspicuous as the minimum investment amount was decreased from 2,00,000 to 50,000 .
5)It is mandatory for the corporation to declare 90% of the income as dividends.
All these factors are attracting a broader spectrum of Indian investors into these trusts.
What does the global market look like?
In more developed countries like the United States,more than 226 REIT’s exist that trade on one of the major stock exchanges—the majority on the NYSE with about 1000+ trusts filing for tax returns. The company American Tower,NYSE listed is the largest REIT in the world having the market capitalisation of over 99.99 billion dollars.
And in countries like UK,more than 70 REIT’s exists as they’ve been around for more than 10 years.
Other than this, all the G7 countries have a good market for these investments and also countries like Saudi Arabia and UAE have few popular REIT’s like emirates listed as well.
THE BOTTOM LINE
Today,India stands with Embassy parks,Brookfield India Real Estate and Mindspace Business Parks as listed companies,the later of which was oversubscribed by 12.96 times. A recent report by the JLL explained how $36 billion worth of real estate could be listed in India.
In the past four years, a healthy demand and supply has increased investor appetite,helping it enter a new period of prolonged growth with continuous government support.
If the market remains this healthy and the growth trajectory is constant,we may even see the biggest institutional investors stepping onboard too.
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Rashika namdev 