Investors’ Response To REITs Likely To Grow As Market Matures


Real Estate Investment Trust (REIT) is now a reality in India with the Embassy Group of Bangalore launching the Initial Public Offering (IPO) of its REIT Fund on the stock exchanges recent. The maiden REIT IPO is likely to pave the way for a number of REIT funds that are slated for launch and have already approached the regulatory authorities for the legal formalities.

Embassy’s IPO was subscribed 2.58 times on the last day of its three-day share sale period in March 2019. Institutional investors subscribed 2.15 times of the shares reserved for them. High net-worth individuals and retail investors subscribed 3.1 times of the shares reserved for them.

Returns From REIT Funds

Experts point out that since this is the first REIT fund launch in India, retail investors have been cautious and the response from them could be much higher for the REITs that will be launched in India later. The Embassy REIT has an indicative return of 8.25 percent which is higher than fixed deposits of banks. The other REITs could potentially give even higher yields and that should draw more retail investors to this new investment instrument.

Since the underlying asset for a REIT fund is rent yielding commercial property, the returns from such a fund can be in the range of 9-11 percent also, experts say. This will make them more attractive for the retail investors. REITs offer lower risks than equity markets which again works as an advantage in their favour from retail investment point of view.

A Number Of REIT Funds Waiting In the Wings

A slew of foreign institutional investors have applied for approval from Securities and Exchange Board of India (SEBI) for the launch of their REIT funds. These include Japan’s NikkoAm StraitsTrading Asia, Taiwan’s Eastspring Investments. Even Malaysia’s Hwang Asia Pacific Reits and Infrastructure Fund is in the fray. USA’s North Carolina Fund and Canadian firm Sentry Global is also eyeing a pie of the REIT bonanza in India.

These companies bring immense experience in operation of REIT funds globally. With their vast experience, they are also expected to bring in efficiencies in managing a REIT fund and thus maximising returns for the investors.

REITs Regulation In India

Experts also point out that the regulations relating to REITs in India are more strict than in other countries. The SEBI has put in a lot of checks and balances in the law for any entity to launch and operate REIT funds in India. That should also be a comforting factor for the retail investors.

A number of domestic real estate companies are also contemplating the REIT route to raise money. As the market for REITs mature in India, there is likely to be more participation from institutional as well as retail investors.

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