REITs op­por­tu­nity in In­dia es­ti­mated to be ` 1.25 tril­lion

Hindustan Times (Chandigarh) - Estates - - ESTATES - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­times.com

As much as 229 mil­lion sq ft of of­fice space in In­dia is com­pli­ant with REIT (Real Es­tate In­vest­ment Trusts). Even if half of this space were to get listed in the next few years, the to­tal REIT list­ing could be worth ` 1.25 tril­lion, as per JLL In­dia es­ti­mates.

The first REIT list­ing is ex­pected by June 2017. Well­known pri­vate eq­uity funds such as Black­stone, Brook­field, Sin­ga­pore’s GIC and the Canada Pen­sion Plan In­vest­ment Board (CPPIB) are ex­pected to be the first movers in this space. They are also the most likely to be suc­cess­ful in this en­deav­our, given the fact that they have a good port­fo­lio of su­pe­rior Grade A of­fice spa­ces in tier-I cities.

In Bud­get 2016, the Modi gov- ern­ment re­moved a ma­jor hic­cup in the path of a suc­cess­ful list­ing of REITs: the Div­i­dend Dis­tri­bu­tion Tax (DDT). DDT was ex­empted on spe­cial pur­pose ve­hi­cles (SPVs). Rules for REITs were re­laxed and the in­vest­ment cap in un­der-con­struc­tion projects was raised from 10% to 20%. SPVs are now al­lowed to have hold­ings in other SPV struc­tures and the limit on num­ber of spon­sors has also been re­moved.

As In­dia’s stock of Grade A com­mer­cial as­sets grows, it presents great op­por­tu­ni­ties for REITs - and for their po­ten­tial re­tail in­vestors, says Anuj Puri, chair­man and coun­try head, JLL In­dia. This in­stru­ment has the po­ten­tial to at­tract in­sti­tu­tional and re­tail in­vestors alike be­cause of its in­her­ent na­ture to pro­vide reg­u­lar dividends at rel­a­tively low-risk lev­els.

REITs will help in ex­pan­sion of the qual­ity real es­tate in In­dia and give builders an­other in­stru­ment to exit their projects. REITs would own real es­tate, with most ex­pected to have their shares listed on the stock mar­ket. These list­ings will pro­vide re­tail in­vestors a new op­por­tu­nity to par­tic­i­pate in the re­alty growth story in In­dia, he says.

REITs will at­tract re­tail in­vestors in In­dia be­cause of their pref­er­ence for in­vest­ments in com­mer­cial de­vel­op­ments — specif­i­cally in the high­est qual­ity or Grade A prop­er­ties — due to the higher ren­tal yields in this as­set class. Also, only 20% of an In­dian REIT’s cap­i­tal can be in­vested in de­vel­op­ment, which is the riski­est end of the real es­tate in­dus­try. The re­main­ing 80% of the fund’s as­sets must be in­vested in in­come-pro­duc­ing prop­erty.

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