FIIs look to build on India’s realty market as SEBI clears six REITs

Rashmi Pratap Mumbai | Updated on June 14, 2018

NikkoAm, North Carolina Fund, Sentry Global, among others, line up for a slice of REITs

After conquering India’s equities, large foreign institutional investors are now eyeing a piece of the real estate market through REITs. Six institutional investors including Japan’s NikkoAm StraitsTrading Asia and the US’ North Carolina Fund have received SEBI approval to invest in India as developers and real estate investors under REITS.

Others to have received the nod are Malaysia’s Hwang Asia Pacific Reits and Infrastructure Fund, Taiwan’s Eastspring Investments and Canada-based Sentry Global, according to information on the SEBI website.

While global investors are making a beeline for a slice of REITs, India is yet to see its first listing. So far, IIFL Holdings and Embassy Office Parks have registered a REIT with SEBI and the first listing could still be some quarters away.

Real Estate Investment Trusts (REITs) work like a mutual fund by pooling funds from investors and investing them in rent-generating properties, mostly commercial (office, shops, malls and hotels). SEBI requires Indian REITs to be listed on the exchanges to make an initial public offer to raise money.

Global Interest

“There is global interest in REITs here because office leasing space is doing well in India. Right now, the average rental per month per sq ft of commercial space in India is less than a dollar. So, they are looking at it positively as it will go up,” Shobhit Agarwal, MD & CEO, Anarock Capital, told BusinessLine.

“REITs have been much anticipated in the Indian market and are expected to be a game changer for the sector. Since the notification of REITs, regulator and the government have made several changes to make such issuances a success in the market,” Ramesh Nair, CEO & Country Head, JLL India, said.

Amit Bhagat, MD & CEO, ASK Property Investment Advisors, said institutional offshore investors have entered the market of income-yielding assets in the last five to six years. “With impediments in taxation cleared, the market is now ripe for listing of REITs in the near future,” he added.

Hurdles remain

However, global investor interest notwithstanding, there are many impediments to actual listing. “As there is no precedence, there is uncertainty regarding acceptance of REITs. There are also concerns on the attractiveness of the annual yield distribution vis-à-vis rates offered by other fixed income instruments,” JLL’s Nair said.

Pankaj Kapoor, MD of Liases Foras, pointed out that yields from commercial properties in India are 8 to 9 per cent and in residential, it is only under 3 per cent. That makes REITs less attractive than, say, the equities market, where long-term returns can be even more than 10 per cent, albeit at a higher risk.

“A critical factor for the success of REITs would be investors accepting a total return — sum of annual yield and capital appreciation — which is expected to be attractive,” said Nair.

The first REITs will be test cases for the Indian market. “If there is success, there will be no looking back,” said Agarwal.

Published on June 13, 2018

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