The upcoming Union Budget 2023 may take further steps to make the REITs and InvITs ecosystem more robust, including those towards ease of investment, expanding the reach of such instruments, accessibility of long term capital, addressing fund tenure mismatch, and more. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have evolved to play an important role in real estate and infrastructure financing, ever since their introduction in 2014, according to Kranti Mohan, partner, Cyril Amarchand Mangaldas. They have become an important channel to attract foreign investment in the real estate and the infrastructure sector.
These two investment tools hit the ‘sweet spot’ – not only are they yielding assets, but they still allow the investor to have liquidity in the market, Santosh Janakiram, partner, Cyril Amarchand Mangaldas, said. Real estate is popular for the stability it provides as an investment however most cannot afford it. REITs allow investors to park their funds in the real estate industry without the huge costs. There’s also lesser risk involved, noted Mohan, as REITs are managed by investment managers that have the required skills and knowledge of the industry. Moreover, a unit investor’s liquidity is increased considerably than if they were to invest in, say, a house.
What India needs for an optimistic future of REITs and InVITs is a consistent and stable long-term policy as well as increased investor education, according to Mohan. Additionally, Janakiram highlighted the importance of raising the capability to raise foreign debt. Access to this debt will increase returns as the cost of debt is lower than the cost of equity. Also, debt providers only provide capital after extensive checks, thus confirming the quality of the product. To ensure that leverage isn’t misused, Mohan explained, SEBI has put a cap on the amount of leverage a REIT or InvIT can take on, which is 49%.
Janakiram concluded by noting that for InvITs, it is crucial that the gap between short-term and long-term capital is minimised in order to make it a fixed-income asset. Furthermore, the deepening of long-term bond markets, whether off-shore or on-shore, needs to be encouraged and can be expected from the upcoming Budget.