The implementation of Real Estate Investment Trusts (REITs) is going to play important role in the expansion of the Indian real estate sector. Most of the developers who will get another instrument to exit their projects are expected to have shares listed on the stock market. Such listings will provide aid to retail investors and a good opportunity to take part in the growth of real estate.
With REITs, the industry will be able to attract investors as it has an inherent nature that provides regular dividends which come with low-risk levels. This is because REITs in India will attract investment in commercial developments. Also, Indian REIT’s monies accounting for only 20 per cent can be invested in development, while the remaining has to be invested in the property which is income-producing.
The income stream of such projects can easily be predicted as it often involves office buildings and shopping malls. For to the yields, the yield via rent in such asset class usually ranges between 8-11 per cent. The yields from the capital value appreciation of residential property stand much lower at 2 to 4 percent in comparison with commercial property.
Last year when the budget was announced, the central government eliminated a major hurdle, the Dividend Distribution Tax (DDT) from the path of a successful listing of REITs. The REITs rules were relaxed and the investment cap was raised from 10 per cent to 20 per cent in under-construction projects.
After the first listing of REIT, retail investors will get more comfortable with the new investment avenue. But, the first-time investors should necessarily be educated regarding this platform and efforts in order to create awareness will be needed.
The retail investors are waiting for the easy and new opportunities that will be revealed to them. The potential of REIT in India is huge. Right now, nearly 229 million sq ft of office space is under the compliance of REIT. If the half of this gets listed in the coming few years, the total listing worth of REIT will stand at $18.5 billion.