Real estate developers building commercial properties are shifting gears in light of recent policy developments. They are now focusing on leasing their commercial properties instead of selling them on an outright basis. With the likely launch of real estate investment trusts (REITs) next year, developers now have the option of monetizing their commercial assets through lease rental discounting (LRDs).
REITs pool capital from investors to purchase and manage income-yielding real estate assets or mortgage loans and can be traded on major stock exchanges like normal stocks. REITs are similar to mutual funds and allow a large number of small investors to invest in real estate. While investors get a chance to participate in commercial real estate’s growth, developers get much-needed liquidity through a new source of capital.
REITs also offer developers the option of better control and valuation over a period of time. Developers who would earlier opt for rental discounting are now building their own portfolio that can be listed under a REIT. On the other hand, builders keen on strata selling are now holding on to their commercial assets due to the prospect of a better yield of 7-8 percent with REITs.
Indian real estate and the commercial real estate (CRE) market are attracting the attention of foreign investorsand domestic institutional investors who are infusing more funds into the sector. In fact, the total investment in the real estate sector crossed Rs. 16,000 crore in the first six months of 2017, the highest ever for the first half in any year. Major foreign investors backing India’s realty story include Canadian Pension Plan Investment Board (CPPIB), Caisse de Depot et Placement du Quebec, Brookfield Asset Management, Singapore’s sovereign wealth fund GIC and the Blackstone Group.
All eyes are on the launch of the first REIT slated for next year and its success is likely to decide the future of this market in India. Listing of CRE portfolios under the REITs would act like a booster shot for the sector providing liquidity option to investors in the future. Experts estimate that India’s real estate market will go from strength to strength with foreign investments increasing to $10 billion by 2020.