The Real Estate Investment Trust or REITs story has just started to unfold in India but Foreign Institutional Investors, including Foreign Pension Funds, have already started to make a beeline to enter India and participate in the emerging growth story of real estate sector.
A number of Asian, American and Canadian Institutional Investors have applied and got the approval from Securities and Exchange Board of India (SEBI) for the launching their REITs. These include, Taiwan’s Eastspring Investments, Japan’s NikkoAm StraitsTrading Asia and Malaysia’s Hwang Asia Pacific Reits and Infrastructure Fund. American investor North Carolina Fund and Canadian firm Sentry Global have also got the go-ahead from SEBI.
These companies are heavyweights when it comes to operating REITs in their home-countries and in other places. For example, Japan’s NikkoAm StraitsTrading Asia runs a number of REITs and strong portfolio of commercial real estate in which it invests to generate returns for the investors. All these companies are operating in many countries and generating different returns of the retail investors, depending on the kind of returns that exist in those countries in real estate assets where they operate.
Returns in Indian Context
In India, REITs are expected to generate about 7-9 percent annual returns for the retail investors as the real estate market is growing and evolving in the Indian context.
Although these foreign operators have got the SEBI nod, they will not be able to start a REIT Fund before the Embassy Office Parks (EOP) REIT is listed on the stock exchanges as EOP has already got the approval from SEBI and has also filed the draft red herring prospectus, taking it ahead in the race for making REITS listed on stock exchanges.
It is the listing of REIT by EOP that will decide the course of action and valuation for other REIT operators. EOP has filed the offer documents for raising Rs 5000 crore from the markets. EOP is a joint venture between Bangalore based Embassy Group and Private Equity firm Blackstone Group of America. Embassy Group has a portfolio of 33 million square feet of commercial real estate assets.
REITs To Offer More Stable Returns
REITs are widely expected to give more stable returns and subject the retail investors to lower risks than the stock markets since the underlying asset for a REIT will be real estate project or projects. REITs are also expected to score over Infrastructure Investment Trusts or InvITs. In a typical InvIT, appreciation in value of the underlying asset is limited as they invest in projects like a road or a highway where cash flows (in the form of toll fees) are certain. Since the underlying asset in the case of REITS will be real estate assets like office buildings and malls, there will be significant capital appreciation also, apart from cash flows.
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