Embassy Group set to launch India’s first REIT

Varun Aggarwal Mumbai | Updated on March 12, 2019 Published on March 12, 2019


Blackstone-backed issue may raise ₹4,750 cr at ₹300/unit

Indian real estate market, battered in the last few years by demonetisation, GST and finally with the liquidity crisis at non-banking financial institutions, could soon get some respite as a ₹4,750-crore IPO of Embassy Office Parks REIT holds out hope of revival in the sector.

Embassy Group’s partnership with US-based private equity fund Blackstone Group for the REIT could usher in a new wave of investments in the real estate sector in the country with experts saying the move had been long-awaited.

The REIT is expected to include Embassy Group properties and offer 158.6 million units at close to ₹300 a unit.

REITs or real estate investments trust use investor money to buy real estate assets for mainly capital gains and since the large sums of investment is in multiple properties, the risk gets diversified. Through a REIT, retail investors can invest in the real estate market without actually buying a property and consequently help the developers to get liquidity for projects, especially in times of cash crunch.

Time to conquer realty

This liquidity will greatly help developers complete their projects, feel Manju Yagnik, Vice-Chairperson, Nahar Group, and Vice-President, Naredco (Maharashtra). “REITs will bring the much-needed respite to the commercial real estate sector and enable developers sitting on underdeveloped or unsold assets to unlock value and create liquidity,” Yagnik said.

“2018 saw large foreign institutional investors such as Japan’s NikkoAm-Straits Trading Asia and US’ North Carolina Fund, among others, receive SEBI approval to invest in India under REITs. Several FIIs have already ‘conquered’ India’s equity markets in the past, and now it is the turn of the real estate market via REITs,” Shobhit Agarwal, MD & CEO, Anarock Capital, said.

Currently India allows creation of REITs only in the commercial real estate sector. The biggest funding crunch however, is faced by the residential real estate, which has been excluded from REITs.

“Low returns coupled with the overall negative hype that has followed the Indian residential sector in recent years have clearly negated its candidature for Indian REITs — at least in the foreseeable future,” Agarwal said.

Developers are hopeful that REITs will infuse the much-needed equity into the sector.

“REITs will thrive and create trust in developers as people are willing to convert a long leap annuity business with the asset holding capacity by the developers,” Parth Mehta, Managing Director at Paradigm Realty, said.

Beneficial to developers

“Developers have created a long-term play by owning and renting such asset classes, prioritise and create a larger equity capital for future government expansion. Such a move will benefit the developers, land bank owners along with investment individuals who aren’t able to win a whole asset,” Mehta said.

It may still be too early, however, to call REITs a success, warned Agarwal. “Whether Indian REITs will indeed be an unequivocal blessing to foreign and domestic investors still remains to be seen. As things stand now, India’s REIT environment is not really a faithful emulation of that of developed international markets such as Singapore, UK, Canada and Australia,” Agarwal added.

Published on March 12, 2019
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