How are REITs (real estate investment trusts) faring in India after the impact of the COVID-19 lockdown? Here’s taking a closer look.
Real estate investment trusts (REITs) are regulated by the Securities and Exchange Board of India (SEBI), while being entities operating, owning or financially backing commercial real estate properties that generate revenues. REITs enable smaller investors to earn steady dividend income from these commercial realty investments. Hence, they do not have to individually purchase or manage their real estate properties. The COVID-19 outbreak and subsequent lockdown did impact the space. However, recent trends indicate that REITs are well on their way towards a steady recovery.
Key Indicators For Investors
- Experts feel that commercial real estate may generate attractive returns up to 16-18% within a year or so. With pro-active support from the Government, rapid development of infrastructure and higher leasing activity courtesy of IT, ITeS, finance, e-commerce and other sectors, the entire commercial segment will do well, generating higher revenues for REITs in turn.
- They feel that REIT-based funds are suitable for investments in the long haul. Retail investors can now invest in Grade-A income or rent generating office assets through REITs instead of having to fork out a huge sum and manage the property themselves.
- REIT funds are helping in monetization of several real estate assets and this is helping the market since the focus is shifting towards better quality and execution of various projects instead of obtaining ownership.
- Several real estate companies are also expected to venture into market listings in the near future, considering the pick-up in overall real estate demand.
- REIT funds have also ushered in professionalism, better management and stability for the real estate segment. It is helping unlock long-term investment and wealth-creation avenues.
- REITs also score highly on the tax efficiency front while enabling legitimization of several projects, making them asset-light entities and enhancing the overall returns on investments (ROI) for regular investors.
- More IT and ITeS companies are calling employees back to work, several other sectors are expanding into newer locations and demand is picking up rapidly for office spaces .This has greatly enhanced overall demand for REITs which were previously reeling due to COVID-19.
Success Stories and More
Consider a few success stories. Mindspace Business Parks REIT, for instance, (which is backed by K. Raheja Corporation), has already carved its presence throughout four regions including Pune, Mumbai region, Chennai and Hyderabad. It is the sole REIT to find a place in the Fortune Next 500 tally as per reports. It has 31.3 million sq ft of Grade-A office space within its portfolio, encompassing five independent office-space assets and five integrated business parks alike. Mindspace turned into an REIT back in 2019 and has been one of the biggest success stories in this category.
Embassy Office Parks REIT, the pioneer which had a massive role to play in developing the category, is also doing well in India. Its chief Michael Holland has already stated that India remains a flourishing office sector market along with highlighting the global technological shift. He has pointed out the increase in hiring and record quarters in the technological space, which will keep boosting the office sector as well. Embassy Office Parks REIT is expecting to benefit from another round of people coming back to their workplaces and subsequent demand. The new financial year is expected to bring in positive tidings for the company which already has 33 million sq ft in completed assets and 10% of them were vacant earlier. The company has also been working on building fresh leasing capacity of 4.5 lakh sq. ft.
Occupancy levels are roughly 87% of the overall portfolio currently for the REIT. The trend is on the upswing according to Holland’s statements and the hotel division in the portfolio is already witnessing steady recoveries across assets. They required roughly a few weeks to recover after the impact of the second COVID-19 wave. The overall scenario is heartening for the REIT. In fact, considering the steady demand from investors and rapidly growing commercial realty segment in the country, more REITs may arise over the next few months as estimated by industry experts.
