High returns are luring investors to REITs amid low interest rates globally. The REITs already listed in India provide yields of 7.5%-8%, compared with 3%-5% in cities such as Singapore, Beijing and Sydney, according to Ivanhoe Cambridge, the realty unit of Canada’s second-biggest public pension fund, Caisse de depot et placement du Quebec.
Currently, the Indian REIT market is dominated by institutional investors and wealthy individuals due to a regulatory requirement of a minimum 50,000 rupee ($700) investment in a nation where more than half the population earns less than 10,000 rupees a month. Kotak Mahindra Asset Management Co. on Monday opened the Kotak International REIT Fund of Funds, India’s first diversified REIT mutual fund, which will invest in units of SMAM Asia REIT Sub Trust Fund.
Local developer Panchshil Realty, who has Blackstone as a partner for the majority of its 22 million square feet of offices, is considering a REIT next year to allow institutional investors to exit, Chairman Atul Chordia said in a phone interview.
‘Build, Lease, REIT’
“You build an office portfolio, you lease it, and you REIT it,” Chordia said. “You can raise capital and cut down your debt.”
The coronavirus outbreak has left India’s office-property market largely unscathed. Most landlords housing large information technology and multinational companies collected 95%-99% of rents despite one of the world’s strictest lockdowns, exchange filings show.
Even firms looking to permanently transition to flexible working conditions are leasing offices in India. Standard Chartered Plc, which aims to offer hybrid work to more than 90% of its employees over three years, will rent space from Indian developer DLF Ltd. for 15 years for one of its biggest global campuses.
“People will ultimately return to office. As companies rethink their cost structures, we will likely see even more demand,” said Vikram Garg, managing director at Blackstone’s India unit.
Investors pumped $15.4 billion into India’s office properties in the last 10 years — with about $2 billion in 2020 before the massive Brookfield and Blackstone transactions — according to data from Knight Frank. Private equity funds hold 84% market share followed by sovereign wealth funds and pension funds. The research firm estimates 206 million square feet of office space was transacted in the last decade, of which 62 million have been converted into REITs, leaving a potential 144 million square feet.
Ivanhoe Cambridge is looking to increase investment in India but will wait to see how the market shapes post-pandemic. A deepening secondary market is among the attractions, said Managing Director Chanakya Chakravarti. PR Dilip, founder of fund management company Impetus Arthsutra, has invested in the Embassy REIT.
“Of late, the minimum ticket size to own a commercial property had become too large for a retail investor, besides the illiquidity factor in the real estate market,” Dilip said. “REITs have provided a new opportunity.”
Source: Mint
