Commercial real estate offers investment opportunity worth $43b via REITs

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Bengaluru | Updated: May 26, 2016 8:34:00 AM

Bengaluru, Mumbai and Delhi-NCR cumulatively account for over 67% of the REIT-eligible inventory

housing loans, credit market, NPAs, care ratings, SME, HDFC bank, PNB Housing Finance, Reserve Bank of India, Repo rates, CREDAI, Getamber Anand, ICICI BankAccording to a report released on Wednesday by RICS and Cushman & Wakefield titled “Commercial Real Estate: Steering Growth in Indian Cities”, the highest value is seen in Bengaluru. (Source: Reuters)

Commercial real estate offers an investment opportunity worth $43 to $54 billion (Rs 2,88,758 crore to Rs 3,60,948 crore) across the top 8 cities via Real Estate Investment Trust (REIT)-eligible ready stocks.

According to a report released on Wednesday by RICS and Cushman & Wakefield titled “Commercial Real Estate: Steering Growth in Indian Cities”, the highest value is seen in Bengaluru.

The report estimates that Bengaluru has the highest value at Rs 1,05,213 crore ($15.8 billion) primarily due to the high volume of investible Grade developments. Mumbai is ranked second with a value of Rs 96,461 crore ($14.5 billion) due to higher capital values of commercial properties, despite having roughly half of Bengaluru’s REIT-able stock. The estimated value of REIT – eligible stock in NCR is Rs 73,423 crore ($11.04 billion) which is the third highest. Further, it is estimated that approximately 315 million square feet (msf) of office inventory is eligible for REIT across the cities.

The REIT-eligible inventory includes existing non-strata sold Grade A inventory, wherein Bengaluru, Mumbai and Delhi-NCR cumulatively account for over 67%.

“REITs can provide a huge opportunity for developers and investors in India given the potential in the Indian real estate market. REITs would help developers resolve their fund-raising issues and allow them to focus on completing their projects in a timely manner,” Sanjay Dutt, managing director, Cushman & Wakefield, a global research firm said.

“We have come out with the IPO guidelines for the issuance of units of Infrastructure Investment Trusts (INVits). On same lines, we are working on the IPO guidelines for units of REITs,” Barnali Mukherjee, chief general manager, Securities and Exchange Board of India (Sebi) said in her keynote address.

She said Sebi has set up sub-committees looking at the financials to be brought out with the offer documents as also the continuous disclosure to be made.

Apart from the office sector, the retail sector too has high potential to generate rental income for investors. Since last year, private-equity firms have shown interest in investing in malls in India, indicating that there is a certain attractiveness in the retail shopping centre space owing to future prospects, the report said.

Sachin Sandhir, Global managing director – Emerging Business, RICS said “Commercial real estate is expected to see continued demand, fueled by positive business sentiment (especially in IT/ITES and new age digital businesses) based on major policy reforms undertaken by the government. There is also likely to be considerable international investor interest in income yielding assets and the first REIT’s and Invit’s are not far away.”

REITs will drive the need for Indian commercial real estate to speak the language of international investors which, in turn will create demand in international standards and corporate governance; professionalism and skills – which are all the things that the RICS Stands for, he said.

The top 8 cities have REIT-eligible mall supply of approximately 39 msf, with Bengaluru, Delhi-NCR and Mumbai together accounting for about 64% of the retail inventory. Owing to the presence of large mall developers in Delhi-NCR, Mumbai and Bengaluru that operate some of the best malls in India, investors are likely to concentrate their investments in these cities. Mumbai (11 msf) has the highest stock of REIT-able malls i.e. non-strata sold grade A malls followed by Delhi NCR (7.4 msf) and Bengaluru (6.5 msf).

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