The Real Estate Investment Trust (REIT) reform was heralded as the initiative that would bring depth to Indian commercial realty.
With companies such as DLF, Prestige, Indiabulls and Essar selling some of their rent-yielding buildings to international institutional investors, to re-inject liquidity in the business or to lower their debt burden, there was no doubt that REIT was the need of the hour, says Joe Verghese, Managing Director, Colliers International India. "It would help improve liquidity in the commercial realty space by giving developers a good exit route as well as an opportunity to garner investments, even from small-retail investors looking to invest in regular rent-yielding Grade-A properties."
"In Singapore, Japan and the US, REIT has emerged as a good alternative investment option for investors," observes Samantak Das, National Director and Chief Economist, Research and REIS, JLL India. "In India, we are expecting the first REIT listing to happen in the near future. This will not only bring in additional funding for the sector but will also give options for investors to either enter or exit the real estate market." What's kept developers from taking the plunge so far?
"The government has brought in the required modifications in REIT regulations to make it market-friendly. However, in the recent past, there has been an upward trend in 10-year government security bond yield, which is being observed keenly by the market players for listing decision," says Das.
So, what is the way forward? "The RBI and the government must bring a broader vision to REITs to make it as attractive as those in other countries, and an investment platform with the same assurances and transparency as mutual funds," proposes Anuj Puri, Chairman, Anarock Property Consultants. "Investors require both, the associated market risks and the returns on investment, to be within reasonable bounds. If these measures are taken, REITs can potentially attract many more smaller investors to participate in the highly cost-intensive market area of Grade-A commercial real estate. As things stand now, the associated taxes on Indian REITs reduce their attractiveness to some extent."
When REIT finally gets underway, Puri expects investors to display a preference for prominent projects, integrated cities and mega housing schemes under expert fund management.
- CHARU BAHRI
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