Commercial segment set to benefit further through REITs

By Ankur Bhatiani, Director, Urbainia Spaces 
Recently, the Budget proposed easing of InvITs/REITs, which will help in getting new REITs and attracting fresh investments in the real estate sector. REIT is a recent phenomenon in India as opposed to the REITs in other parts of the world where they have been present for over four decades in some cases. It is to be seen what kind of easing government will carry out in InvITs/REITs. Hopefully, there will be changes in the mandated time gap between two institutional placements, and changes will be made with respect to pricing of units by REITs and InvITs for preferential issues.

REITs are products such as mutual funds in which investors can own income-generating assets that they otherwise cannot afford to invest in, such as commercial buildings and office spaces. SEBI regulations mandate REITs to invest 80 per cent of its assets in assets that are created and produce profits.

At present, REITs are only permitted to invest in commercial real estate and office space. They need 90% of the rental income to be paid as dividends. REITs also earn interest income from special-purpose vehicles (SPVs) that hold assets through them. They lend money to SPVs and distribute among unitholders the interest income. Investors are now benefiting from the price appreciation of REIT's underlying real estate. Compared to owning a physical commercial asset, the minimum investment required is low. A minimum of Rs 50,000 or a lot of 100 units can be invested in REITs, whichever is of higher value.

For someone looking for exposure in commercial real estate and able to stay invested for long, REITs are a good product. When an investor has no real estate in their portfolio and needs dividend income, REIT is a good way to expose himself to real estate. A REIT should be assessed by an investor on factors such as how well the micro market in which the assets are held has done, how rental growth has been, who are the tenants, and what kind of lock-in they have. Therefore, if you intend to invest in a REIT, assess correctly and stay put for the long term.

In view of the pandemic, real estate expects that there will be relaxations for raising of equity capital. Having said that the relaxations will be good for the market, and people will see more REITs moving in.  Recently, one more REIT has entered the Indian real estate space, which shows that the prospects are good. For investors, the Brookfield Real Estate Investment Trust (REIT) IPO is available for subscription. This is the third Reit to be listed on Indian stock exchanges after the successful listing of two REITs, Embassy Office Parks and Mindspace Business Parks.

We have seen that interest of people towards commercial properties has seen an upsurge, especially after the global pandemic as they want to have an extra source of income. It is good news for the entire real estate sector as it has now been proven that real estate has emerged as one of the safest investment options; with the easing of InvITs/REITs, the sector is set to benefit further.