According to real estate analysts, REIT or Real Estate Investment Trusts (REITs) have emerged as a potent asset monetisation tool. Though India made a late entry in the field of REITs (first REIT made its entry into capital markets only in 2019), coming days are likely to make up for initial slow start. Three REITs have already been listed in India and booming IPO market is likely to attract more in the near future.
REIT is a company that owns, and in most cases operates, income producing real estate. REITs operate almost like a mutual fund by pooling funds from investors and investing them in real estate assets.
With India having 494msf of occupied Grade A office stock as of September 2021 and global institutional investors continuing to invest in annuity assets, one can expect more REIT listings over the next 2-3 years. Developers such as DLF, Phoenix Mills and Oberoi Realty have already highlighted their medium-term plans to consider a REIT listing. Further, large annuity portfolio buyouts in FY21 such as Blackstone buying out Prestige Estates’ office and mall assets and Brookfield’s acquisition of RMZ’s office portfolio points to consolidation in favour of institutional landlords for annuity assets.
In February 2020, the Government of India’s 2020 Union Budget had proposed to impose a Dividend Distribution tax (DDT) on REIT investors which had dampened sentiment for REIT investors. Although the proposed DDT had negligible near-term impact as the Embassy REIT has been paying out distributions mostly in the form of interest and capital return, numerous representations by industry stakeholders has prompted the government to rollback the proposed DDT on REITs in March 2020. However, this waiver is on the condition that REIT SPVs will not move to the new tax regime (of lower tax rate). This has cleared the phase of uncertainty and now more developers are likely to take the route of REIT for monetisation of their assets.