Commercial leasing to form REITs’ backbone

International property consultant Savills India and the Federation of Indian Chambers of Commerce & Industry (Ficci) jointly organised a virtual conference, ‘India REIT: A potential investment window’, to bring together industry leaders and educate potential retail investors about Real Estate Investment Trusts (REIT) as a prospective investment instrument. 

The two also released a research report that provided an overview of REITs with specific attention to retail investors’ interests.  

According to the report, India’s sole REIT launched in early 2019, has outperformed the market, not merely in normal circumstances but even during the ongoing pandemic. It also pointed out that REITs are relatively secure as 80 per cent of the underlying assets in REITs are required to be operational and income-generating. Moreover, the diminishing returns in other investment avenues such as PPFs, FDs, RDs and Government bonds when compared to the superior pre-tax yields of REITs, makes it a lucrative option.

Additionally, as per the report, commercial leasing activity will form the backbone of REITs in the Indian market. The office market holds significant promise and is expected to bounce back in the near future. 

Arvind Nandan, Managing Director, Research & Consulting, Savills India, said “REITs are an attractive investment offering, especially in the current environment when interest rates are benign. Apart from capital growth, the returns from REITs include dividend returns which are currently 7 pc+. Overall, REITs promise to offer healthy returns over a three to five-year period. Investors have had a positive experience from India’s first REIT in the last year”.

The release of the report was followed by a panel discussion, moderated by Arvind Nandan. The panel included some of the most eminent personalities in the real state space such as Sanjay Dutt, Joint Chairman, FICCI Real Estate Committee and Managing Director and CEO, Tata Realty and Infrastructure Limited, Mike Holland, Chief Executive Officer, Embassy Office Parks, Gaurav Karnik, Partner and National Leader Real Estate EY India, and Balaji Rao, Managing Partner – Real Estate, Axis AMC Limited. 

The panelists spoke about the potential this investment platform promises and what makes it a good investment alternative even during the pandemic.

“Due to the COVID-19 pandemic, REITs and commercial real estate market, in general, may feel some pressure on rental cashflows in the short term. However, given that India continues to be a top IT outsourcing destination globally due to the availability of talent pool, cost arbitrage and high-quality infrastructure, commercial real estate will continue to be a resilient, low risk and high return asset class”, said Sanjay Dutt.

Mike Holland said, “REITs is a tax-efficient tool and if the product continues to perform, the way it has been, then it will be very successful in attracting investors domestically as well as internationally.” 

Gaurav Karnik said, “There is strong corporate governance framework which allows related parties to be valued properly. So from corporate governance and tax efficiency perspective, and also potential fixed income and upside on the unit growth, REITs are a good place to put your money in.”

Balaji Rao, said “Once we emerge out of COVID-19, the office market is likely to be as lucrative as ever. REITs should be given as much preference as equities or mutual funds as it is a much safer investment tool.”