IBEF: October 11, 2019
According to realty consultant Anarock, real estate developers may raise more than US$ 25 billion over the next three years. These funds will be raised by listing company’s rent-yielding commercial properties through the Real Estate Investment Trusts (REITs) route.
India's first REIT to raise Rs 4,750 crore (US$ 679.64 million) was launched earlier in the year by the global investment firm Blackstone and realty firm Embassy group. The joint venture firm of the both company, Embassy Office Parks, listed its rental assets on the exchanges.
Mr. Shobhit Agarwal, MD & CEO Anarock Capital said, "Commercial REITs may raise over US$ 25 billion for Indian real estate over the next three years. This involves the listing of more than 150 million sq ft of rent-yielding Grade A office properties across top seven cities - covering 25-30 per cent of the overall Grade A office space in these cities."
He added "At present, the top seven cities consisting of Delhi-NCR, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad and Pune have close to 550 million sq ft Grade A office supply - of which 310-320 million sq ft is 'REITable' as of now."
Mr. Agarwal further added, "The recent success of India's first listed REIT offers much-needed hope to the beleaguered real estate sector. The enthusiastic response to Embassy Office Parks' REIT launch - and its more-than-satisfactory performance - is priming investors for similar REIT opportunities, which in turn will open up more funding avenues for the sector."
Several large developers are interesting in listing their commercial assets, he added.
Prestige Group is planning to list its first commercial REIT and has already started to sort its residential, office, retail and hospitality businesses, as per Anarock. The company may also introduce its retail REIT as and when the opportunity arises. Other players in the REIT fray include RMZ Corp, K Raheja Corp, Godrej Properties and Panchshil Realty.
"REITs would help commercial developers improve their liquidity by unlocking the value of their assets to raise capital. For big and small investors, it is a highly de-risked investment route offering annual returns of as much as 12-14 per cent over the long-term - an attractive proposition when viewed against more volatile asset classes," Agarwal said.
A keen interest towards the emerging areas such as REITs and InvITs was seen from the foreign investors in the US during the recent meet by Securities and Exchange Board of India Chairman Ajay Tyagi and other officials.
As per Mr. Agarwal, REITs in residential section would take time. The draft Model Tenancy Act, 2019 will help the rental housing become a more attractive investment play.
Agarwal added that for Indian residential REITs to succeed, as they have in countries like Singapore and the US, rental yields need to significantly surpass the current 1-3 per cent.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.