NEW DELHI: Real Estate Investment Trusts (REITs) can become a reality in India soon and generate returns of 7-8 per cent annually with minimum risk, according to property consultant Anarock. Market regulator Sebi had notified REITs regulations in 2014, allowing setting up and listing of such trusts which are very popular in some advanced markets.
REITs are listed entities that primarily invest in income-generating properties and distribute most of the income proceeds to the unit-holders through dividends. However, not a single REIT has been listed in the country so far.
“India is waiting with bated breath for the first listings on its home-grown Real Estate Investment Trusts (REITs). In fact, the first listing will happen within a couple months,” said Shobhit Agarwal, MD and CEO, Anarock Capital. REITs are good news for those investors who have a small appetite – as small as Rs 2 lakh – but want to invest in the commercial real estate market, he added.
“Small investors will raise a pertinent question — will REITs be able to offer the same returns on investment that they can expect from ‘real’ real estate investments? The answer is, probably not. Definitely, investors who are hoping for unrealistic returns (more than 20-30 per cent) will need to look elsewhere.
“Being realistic in one’s returns expectations from REITs is important. A realistic ROI (return on investment) expectation would be in the range of 7-8 per cent annually, post adjustment of the fund management fee,” Agarwal said in a report.
Stating that the ROI would be highly structured, realistic and risk-averse in REITs, he said this instrument is ideal for investors who want a steady income with minimum risks. Moreover, the consultant said that investors can earn two types of income from REITs – one through capital gains post the sale of REIT units, and the other via dividends. REITs would be a good investment option for investors looking to diversify their portfolio beyond gold and equity markets, he said.
Realty firm Embassy group plans to launch its REIT to rise about USD 1 billion as part of its strategy to monetize rent-yielding commercial assets, sources had said earlier. Global investment firm Blackstone-backed Embassy Office Parks is likely to file the draft prospectus with market regulator Sebi to launch the country’s first REIT.
Agarwal explained that just like mutual funds, REITs are investment vehicles that own, operate and manage a portfolio of income-generating properties for regular returns. As of now, REIT-listed properties are largely commercial assets – primarily office spaces – that can generate steady and lucrative rental income. Retail malls and hotels can also be put under REITs.
Post its registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities. Like listed shares, small investors can buy units of REITs from both primary and secondary markets. To ensure regular income to investors, it has been mandated to distribute at least 90 per cent of the net distributable cash flows to the investors at least twice a year.
“The government and SEBI have incorporated several changes time and again to make the issuance of REITs a success.”However, only time and circumstances can reveal the ‘real’ success of REITs in India. The first listing will be more of a test case for the Indian market. If it succeeds, there will certainly be no looking back,” Agarwal said. PTI
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