With ample benefits and potential galore, REITs are surfacing as a lucrative choice for investors with its demand soaring along with the exponential growth of ecommerce. In this feature, we explore how REITs are gaining imminence in the country and are now poised to make sweeping changes in the growing Indian logistics market in the days ahead.
REITs, or Real Estate Investment Trusts, are companies that own or finance income-producing real estate across a range of property sectors. Stocked with a barrage of benefits, these real estate companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they provide a number of benefits to investors.
Industrial REITs are now growing to capture the burgeoning warehousing demand in the country. REITs own sizeable number of warehouse properties that support the global supply chain for the manufacture, storage, and shipment of goods, of which, the rapid growth of logistics facilities used for the delivery of products bought on the internet is noteworthy. With two successful back-to-back office REITs in the recent past, and a couple of more REITs lined up ahead, retail investors are gradually getting acquainted with the concept of REITs in India.
INDUSTRIAL REITS: AN INTEGRAL PART OF THE LOGISTICS ECOSYSTEM
How are industrial REITs an integral part of the growing logistics market and how has the pandemic been a catalysing factor for the same?
As a nouveau field in India, REITs are already en route to capturing the growing Logistics market.
Dipin Kwatra, Founder and Director, New Vertical throws light on India’s first REIT and the possibility of future REITs to look forward to.
“REIT is a very new concept for Indian Markets, wherein in the first REIT was only introduced in 2019 by US based Blackstone group that collaborated with South India based developed Embassy Group. Its portfolio included 7 office parks and 4 city centers. India, is yet to witness any Industrial or Warehouse specific REIT to be listed here,” he says.
“Globally, there are a lot of listed industrial REITs that play a vital role in global supply chain, and they own and manage real estate properties that are used for manufacturing, production, storage, and distribution of goods. Their real estate assets like Warehouse and Industrial parks are leased to world’s largest retailers like Walmart and Ecommerce players like Amazon”, Mr Kwatra shares.
Further, he talks about an optimistic future in the context of India’s goals towards achieving self-reliance.
“Industrial REIT investments pose a good route for new players to enter the Warehouse market~Dipin Kwatra, Founder and Director, New Vertical
considering logistics is increasingly being considered an asset class post-GST in India and pandemic has led to increased demand for Warehouses, manufacturing and industrial parks to make India more ‘Atmanirbhar’ (selfreliant) for its own needs. At a time when the government has shifted its focus to encourage local manufacturing, while the world also attempts to look at a ‘China plus one’ strategy to de-risk global supply chains, investors in logistics and warehousing are very optimistic.”
Sandeep Chadha, MD, Pragati Warehouster, shares, “REITs are securities linked to real estate that can be traded on stock exchanges once they get listed.They invest in income-generating preleased real estate. This income gets distributed among unit holders, including sponsors, trustees, fund managers and unit holders”.
Mr Chadha touches upon the timeliness of India’s first REIT and how it has paved the way for bigger institutional fund flows into the sector.
“Nearly $7 billion worth platforms have been created for the warehousing sector since 2015. Over $2 billion in PE investments have been infused in the industrial and logistics sector between 2017 and Q1 2020. Investors are upbeat on this sector and are working closely with developers to identify warehousing investment opportunities. The launch of Blackstone-Embassy Group’s REIT (India’s first Real Estate Investment Trust) has galvanised this sun rising sector. It will significantly enhance the transparency and governance in commercial real estate while also attracting more institutional fund flows into the sector.”
RIDING THE REIT WAVE: INDIA AND GLOBAL COMPETITION
How well positioned is India in terms of riding the REIT wave in the coming years?
In India, the REIT wave is fairly new. It presents itself with a bundle of opportunities, at a time when the political environment seeks to expand the investor base.
Mr Chadha underlines this thought.
“With China-US trade war getting hotter, and internet penetration in India at an all-time high, India is uniquely positioned to capitalise on this opportunity on platter. The government along with the regulator SEBI, are committed to enlarge the investor base and REITs are an unavoidable opportunity in this regard.”~Sandeep Chadha, MD, Pragati Warehouster
SEBI – the governing body for REIT – has already introduced a series of amendments in favour of the investor community last year. In addition to that, to bolster investor interest in REITs, the Union Budget 2021-2022 announced a slew of measures to ease financial access by enabling FPIs to invest in debt instruments of REITs, and
separately providing tax reliefs by exempting TDS on dividends paid to REITs.
With Attractive tax structures, relaxed norms for sponsors etc., efforts have been underway to make Indian REITs more attractive to global equity investors and domestic institutional and retail investors.
“Physical Real estate faces challenges like entry barriers and Liquidity that can be overcome by digital assets like REIT attracting Indian HNI, UNHNs and Global investors to REITs”, Mr Kwatra asserts.
According to rating agency Crisil, the top 10 commercial real estate owners(in India), including developers and funds, have around 184 million square feet, which could fetch annual lease rental income of INR 17,000 crore and has the potential to raise INR 1.5 lakh crore in REITs.
It could mean that India’s REIT listing could expand beyond office space.