Global investors will now be able to bring their capital in more effectively and contribute with their international skills in managing such trusts, resulting in higher yields for REIT (Real Estate Investment Trust) investors in the market. In recent Budget announcements, the government has made it easier for international portfolio and institutional investors to participate in Indian REITs by relaxing the legislative debt financing criteria.
REIT is a modern financial trust founded in India that enables small investors to invest in commercial real estate. Over the last 3-4 decades, many investment managers and international portfolio investors (FPIs) and foreign institutional investors (FIIs) have acquired considerable experience and skills in managing the activities of such trusts in developing countries.
REITs & international experience
Now, certain FPIs(Foreign Portfolio Investors) and FIIs(Foreign Institutional Investors) will be able to comprehend the Indian REITs industry and lend their skills in handling REITs’ affairs, driving the graph of REIT yields to new heights. This would increase the returns on investment for owners or unit investors and give Indian fund managers a more excellent perception of the dynamics and nuances concerned in operating such trusts.
Many pension schemes in the world today have pledged to include such guaranteed dividends to their members or contributors. Even so, they are unable to produce such high yields in their nations. They’ve been searching for ways to raise their income to the point that they can retain the minimum payment to members regarding the percentage they promised. Certain sovereign funds are also used. Some Asian nations, such as Japan, have found themselves in this position, where the return from mutual funds or sovereign funds is smaller than investing in their own countries. To satisfy their obligations, these funds will invest in India and earn considerably higher returns.
Win-Win situation-
For the last few decades, those funds have been participating in REITs in their own countries. Via board roles and other necessary REIT appointments, they have acquired the requisite expertise to manage the show. However, in recent years, commercial property returns in their home countries have been surpassed by commercial asset yields in fast-developing countries such as India. As a result, it’s a win-win scenario for them and Indian investors, who will benefit from improved and more competent REIT management.
In the United States’ best markets, commercial assets will produce a return on investment (ROI) of 4% to 5%. In India, on the other hand, the rate would be 7-9 percent. In India, the return on investment (ROI) can be as high as 13% in exceptional locations and properties. India now has a large number of Grade A office spaces available. The vacancy rate has historically been less than 15%, which is indicative of a vibrant and high-potential office sector.
REITs changing actuality in India
In India, the real estate investment trust (REIT) market is heating up. The Embassy Office Parks REIT was the first to go public in 2018. Brookfield Real Estate Investment Trust and Mindspace Business Parks REIT have both launched recently. These REITs are doing exceptionally well. Embassy REIT has already established itself as Asia’s largest REIT. The recent REITs in India have already seen some foreign collaboration. Now with the authorities granting FPIs and FIIs to spend in debt securities of REITs, more such expenditures will only make the REIT management scenario more able and help the progress of such trusts meet global standards.
To admittedly, India’s net absorption of Grade A office space has been astounding. In 2019, total absorption surpassed 46 million square feet, making it one of the world’s largest. The net absorption was as strong as 25 million square feet even during the pandemic-stricken year of 2020. In 2021, there’s a fair probability that total absorption would reach 30 million square feet.
With a strong economy and a thriving corporate sector, India will add more Grade A office space than probably any other developing country in the coming years. The previous years are a testimony to that. The global investor community is left with no choice but to include India in its investment portfolio as the returns are great here.
(Source- Financial Express)
Leave a Reply