REIT/InVITs: Lot size cut could be a game changer

KS Badri Narayanan Chennai | Updated on July 02, 2021

Innovation, stable regulatory regime are key for expansion

Real estate investments are becoming more bite-sized, thanks to market regulator SEBI which has taken an important decision for the development of products. So, year 2021 could be path breaking for REITs/InVITs, at a time when investors are looking to diversify their portfolios beyond equities after a gravity-defying rally in the past few years.

Significant step

In a recent board meet, the Securities and Exchange Board of India made an amendment to InVITs/REITs regulations for revision in minimum subscription and trading lot. Accordingly, for publicly issued REITs and InvITs, the revised minimum application value was brought down within the range of ₹10,000-15,000 and the trading lot to one unit.

Currently, Embassy REIT, MindSpace REIT, Brookfield India REIT, IRB InVIT and PowerGrid InVIT are available.

The decision to cut entry amount is significant, as it will allow small retail investors to take part in these products, which were craving for liquidity till now. Previously, the minimum investment used to be ₹50,000-60,000.

This was quite high because, today, mutual fund SIPs come as low as ₹100/500 per month, while minimum lump sum investment in MFs is around ₹5,000.

Immediately after SEBI's announcement, India's first listed REIT — Embassy REIT — reduced the trading lot size to one unit from the current 200 units.

Real estate investment trusts/infrastructure investment trusts are like mutual funds. They collect funds from investors to buy and manage income-generating real estate/infrastructure assets such as roads, transmission towers, wind, solar, ports, airports, telecom, etc. REITs/InvITs will issue and allot units to investors that would be listed and traded on the stock exchanges akin to equity or exchange traded funds. While REITs, under current norm, can invest up to 20 per cent in under-construction assets, InvITs (through public issue) can invest up to 10 per cent in under-construction assets.

REITs and InvITs allow sponsors to monetise revenue-generating real estate and infrastructure assets (directly or through special purpose vehicles) while enabling unit holders to invest in these assets without actually owning them.

Timing is right

The timing of the SEBI decision to reduce the market lot comes at a crucial time, as more companies are planning to launch InVITs and REITs, especially from PSU stable such as NHAI, GAIL, HPCL, BPCL and Indian Oil. Fund-starved private players are also expected to launch REITs and InVITs.

According to JLL, a professional services firm that specialises in real estate and investment management, India’s current office markets across seven major cities have potential space of 284 million sq. ft that could be securitised with an estimated value of $36 billion (₹2.63 lakh crore).

Though the SEBI move is the first major step in the right direction, investment trusts/sponsors, exchanges, mutual funds and index providers should launch innovative products to attract a wider class of investors. Besides, there should be stable regulations, especially on the taxation front.

Another key worry for investors is corporate governance and transparency. If the sponsor adheres to strong ethics, REIT and InVITs will attract not only global investors but even retail and AIFs who are looking to gain a greater a share of India’s economic growth story.

“The existence of robust securitised ownership offers an efficient pathway to accessing a real asset marketplace growing in value by 12 per cent annually. REITs and InvITs can help build prosperous communities with the potential to enrich hundreds of millions of lives across the sub-continent,” said PwC.

Published on July 02, 2021

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