$3.5 billion syndrome

Divestment by big developers may drive a record four-fold rise in institutional funds inflow into India's commercial real estate this year

India’s commercial realty space may soon see strong inflows of funds from institutional investors like private equity and sovereign wealth and pension funds in the days ahead.
Reason? Real Estate Investment Trusts (Reits) is helping large developers dilute shareholdings in their properties with the potential to generate attractive rental revenue and raise funds.
Predicts Kushagr Ansal, director, Ansal Housing: “Allowing Reit investments in under-construction projects will prove to be a game-changer.”
Blackstone, Brookfield, Singapore’s GIC and Canada Pension Plan Investment Board (CPPIB) are among some of the leading players readying plans to launch and list Reits in India.
Growing institutional interest would, in turn, lead to higher standards in corporate governance in a sector, which has never been transparent to begin with, say experts.
The size of Reit-list-able A-Grade commercial real estate property is estimated at Rs 1.25 lakh crore in India.
In a major boost to companies’ plans to launch and list Reit, the government has withdrawn the dividend distribution tax (DDT) on this investment vehicle. Says Vikas Bhasin, MD, Saya Group, “Removal of DDT from the income earned through Reits and increasing the investment cap has surely boosted investors’ sentiments. But, with the promise of high investment and returns, comes greater risk as well. If a project gets delayed, the chances of funds getting stuck are very high.”
Divestment by large developers is estimated to drive a four-fold rise in institutional funds inflow into India’s commercial real estate this year to $3.5 billion, a new peak for these investments, a recent report from RICS -Cushman & Wakefield points out.
The report said a lot of institutional capital is chasing the limited investible grade office stock of 280 million sq ft across top eight property markets. Interest from institutional investors is likely to percolate to retail investors once Reits are launched and show some traction.
The next two years are also likely to witness continued momentum of investments into the office sector, as Reits becomes a reality, the report added. Banks and insurance companies too have regulatory approval to invest in Reits. Over the last few years, private-equity funds have been quite active in chasing leased assets.
In 2016, for instance, investments into commercial assets were pegged at $957 million, a 6 per cent increase from the previous year.
Explains Deepak Kapoor, president Credai-Western UP & director, Gulshan Homz, “There is a massive fund crunch in the sector, which Reits can ease.”
The property investment instrument allows anyone to invest in portfolios of large-scale properties in the same way they invest in other industries through purchase of stock.
Well, the time for Reits is fast approaching. Says Abhishek Bansal, executive director, Pacific Group: “The first listing under Reits is about to be done soon in a month or two and is sure to attract retail investors in great numbers.”
Points out Amit Oberoi, national director, knowledge systems, Colliers International India: “ The first Reit listing and its performance will be important, as it will set a yield benchmark for subsequent listings.”
Vijay B Pawar, founder and director, Mirador Dewellers Pvt Ltd, concurs. “With Rera regulations in place now, Reits could serve as a torch light.”
In fact, caution has given way to positive bullishness. Harjith D Bubber, MD & CEO, Rivali Park, CCI Projects, believes that “Reits will enable developers to unlock the value of their assets and generate additional liquidity, which they can use for completing the developments undertaken by them. This will bring a lot of transparency in transactions across sector,” he says. The stage looks set then for a grand revival.