Structured on the lines of mutual funds, REITs are securities linked to real estate that can be traded on the stock exchange after their listing.
Real estate has been a traditionally preferred investment option for Indians. Over the past few years, commercial realty has emerged as a resilient segment as opposed to the residential sector and substantially drew investors towards the Grade A office space. According to the Knight Frank Wealth Report 2020, the equity investment of $6,221 million was received by the Indian realty sector in 2019 wherein the office segment got 47% of the significant share of total investment.
Facilitating growth avenues to it, Real Estate Investment Trusts (REITs) might be a great investment option for those evaluating opportunity to invest in. To give a fillip to real estate investment, the Real Estate Investment Trust (REITs) was formally inaugurated in India in 2019. Structured on the lines of mutual funds, REITs are securities linked to real estate that can be traded on the stock exchange after their listing. However, unlike mutual funds, physical real estate is the underlying asset in REITs.
REITs have a successful track record in several Asian countries such as Japan, Singapore, Malaysia, Thailand, etc. Similarly, in India, REIT can be a great potential investment option providing assured and ongoing returns. REITs were introduced in India in 2014 and the launch of Embassy REIT in 2019 opened up a new asset class for investment in the country. According to industry reports, from its establishment in April 2019 to June 2020, Embassy REIT has outperformed the BSE realty index and has given 14 percent returns.
While there are several ways to invest in real estate, the investment through REIT ensures plenty of benefits to the investor. A major advantage of REITs is that it allows investment in Grade A commercial realty and thus represents an addition to the investment portfolio. As an Alternate Funding Mechanism (AIF), it provides liquidity to the investors, and for investors, it is a stable investment option. Moreover, investors can be assured of regular returns. It is a transparent investment option with the Securities and Exchange Board of India (SEBI) introducing several guidelines in this regard. Furthermore, SEBI has reduced investment limit from Rs 2 lakh to Rs 50,000 in the 2019 amendment which enhances the prospects for REITs. In the wake of the pandemic, SEBI has recently announced the relaxation in due date for regulatory filings in REIT and InvIT for FY20.
Due to the uncertainty in the present environment, people are sceptical about their future investments. The COVID-19 crisis has put a temporary pause on investment with people being in a ‘wait and watch’ mode. However, once the situation returns to normalcy, people are likely to explore secured investment options that might lead to REIT gaining the trust of investors. Evaluation of expansion plans and office space requirements post COVID-19 may also pull investors towards REITs.
REIT provides better rentals as compared to other real estate properties, making REIT buildings a great investment avenue. It strengthens the transparency in the sector ensuring the safety of investment. Hence REIT is expected to attract investors in the post-COVID era.
Over the past few years, the government has accorded a slew of incentives to Infrastructure Investment Trusts (InvITs) and REITs. However, in the wake of COVID-19, there is a need to rationalize the existing tax structure and remove ambiguities. According to industry reports, it is believed that the pandemic outbreak might delay the planned investment and fundraising through REITs this year. Hence, the government should bring in some relief measures for the sector to get back on a growth trajectory which would eventually improve market sentiments. The removal of the Dividend Distribution Tax will have an impact on future listings and investment prospects. Hence, there is a need to reconsider this proposal. The widening of time-period options and asset categories in REITs will further enhance its attractiveness. Such measures will improve the investor sentiment and put the realty sector onto the path of a higher growth trajectory.
(By Ravi Singh, Head Communication, Viridian RED)