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India’s real estate sector, which is undergoing a sluggish period, saw two big structural announcements- Real Estate Regulatory Authority (RERA) and Real Estate Investment Trusts (REITs)- that are expected to revive the sentiments in the sector.
Both the vehicles, especially REITs, promise transparency, good governance and accountability in the realty sector. REITs is seen as a huge move in a country that is starved for capital.
In a bid to discuss the potential of REITs and its future, PwC in association with CNBC-TV18 held its fifth episode of ‘India Tax Talks’ on ‘Can REITs be a viable investment-friendly way to participate in India’s growth story’.
Top minds from the industry Dr. Niranjan Hiranandani, Co-founder& MD, Hiranandani Group; Bhairav Dalal, Partner & Leader Real Estate Tax, PwC India; and Vinamra Srivastava, CEO, India Operations & Private Funds, Ascendas, a member of CapitaLand understanding REITs investments spoke at length about REITs as a big addition to the liquidity market for it is.
“REITs are a niche type of capital investments that are available. It is not more on the beginning of development cycle but it’s more close to the end of the development cycle. So, most of the projects are complete and most of them are even rented in advance. So, the safety and security of an investment into a REIT is almost 100%. There is no risk profile in this investment and hence the capital available for this kind of investment, if properly managed, is immense and huge,” said Dr Hiranandani.
Echoing the same sentiment, Srivastava said that the entire realty sector will get institutionalised due to REITs.
“REITs increases the transparency and governance in the sector significantly as the entire portfolio is listed now. It also warrants a very high quality of maintenance and operations in the portfolio so that the portfolio can continue to command the kind of premiums that investors demand. Effectively, the entire sector gets institutionalised, results in research coverage, disclosures and benefits the entire sector,” said Srivastava.
As the discussions moved forward, the experts said that it is a great time to implement REITs and provide investors to participate in the asset class as the demand is going to go up. They also pointed out that India could take lessons from countries such as Singapore and implement REITs in a successful manner.
Meanwhile, speaking about the outlook and opportunities, Dalal said due to REITs, real estate will become a safe and secure asset class.
“It offers an investor a far more stabilised return over a longer term, and with the interest rates dropping, this is going to be the most secure and the safe asset class that you can invest in,” said Dalal, adding “a bit of regulatory tweak is required to make that far more efficient. Once that regulatory tweak is done, we will see some of the players going out and aggressively tying up with may be Tier-II assets and taking the whole bunch to a REITs.”
The industry stalwarts also deliberated on returns that REITs could offer and how positive will its effects be on residential property.Watch the full episode here.