Latest News | Performance of India's Maiden REIT Has Enthused Investors, Companies: Industry Experts

New Delhi, Jul 22 (PTI) The successful listing of India's first Real Estate Investment Trust (REIT) in April last year and its strong performance have given a lot of confidence to domestic and foreign investors and also encouraged realty firms to tap this route to raise funds, according to industry experts.

Addressing a webinar organised by industry body FICCI and property consultant Savills India, Tata Realty & Infrastructure MD and CEO Sanjay Dutt said India's office market has performed well despite slowdown in the real estate industry.

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Dutt, who is also joint chairman of FICCI Real Estate Committee, said the average leasing of office space has been around 30 million sq ft over the last decade and demand touched record 47 million sq ft in 2019.

Dutt said the listing of India's first REIT by Embassy Office Parks, sponsored by the Embassy group and Blackstone, in April 2019 and its performance since then have given a lot of confidence to institutional investors, both domestic and foreign.

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By the end of this fiscal or the first quarter of the next financial year, about 100 million sq ft of office space will come under REIT as two public issues are in pipeline, he added. 

Mindspace Business Park, owned by K Raheja and Blackstone, is launching its Rs 4,500 crore REIT public issue on July 27.

Embassy Office Parks REIT CEO Mike Holland said the company initially faced challenges in making domestic investors understand this product but now things have changed.

He highlighted that the company distributed nearly Rs 1,800 crore to unitholders and gave a return of 25 per cent during the last financial year.

India is the number one source of technology talent in the world that attracts global MNCs to set up office in the country, Holland said, adding that cost arbitrage and low offices rentals were no more the only driving force.

Gaurav Karnik, partner and national leader - real estate, EY India, said the tax structure for both domestic and foreign investors should be brought at par.

He also said market regulator Sebi should reduce the lot sizes and allow buying and selling of REIT units as equity shares.

"We have a great future in REIT. We have world class product, green buildings with world class occupiers and world class talent to manage office space," Dutt said.

FICCI and Savills India also released a report on REIT during the seminar.

While REITs have existed globally since the past 60 years and are a USD 2 trillion asset class currently, India saw its first REIT in April 2019 when Embassy Office Parks REIT IPO (for about 33 million sq ft) got listed and paved the way for retail investors to participate in the commercial real estate sector, Dutt said in the report.

REITs enable investors generate returns through stable rent-yielding cash flows (with 90 per cent of the earnings distributed to unitholders) and capital appreciation.

Interestingly, while the All REIT Index in the US outperformed S&P 500 by about 440 basis points over 20 years, India's only REIT has outpaced equity markets by around 2,000 basis points in the last five quarters since launch, he said.

India has around 650 million sq ft of Grade A office space, of which 310-320 million sq ft is REIT-able stock.

"In the more recent times, COVID-19 pandemic has impacted everyone globally and the commercial real estate (CRE) market is no different.

"REITs and CRE market, in general, may feel pressure on rental cashflows in the short term as tenants seek rent waivers/ deferments or alternatively look at renegotiating lease contracts/ vacating the premises due to their financial instability," Dutt said.

However, he said India continues to be the top IT outsourcing destination globally due to the availability of talent pool, cost arbitrage and high quality infrastructure and therefore, the commercial real estate will continue to be a resilient, low-risk and high-return asset class.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)