Guide to REITs in India: Including Embassy REIT, Investment Strategies, Top Picks, and future trends

Introduction

Investing in India offers a variety of options, from financial instruments like bonds, stocks, and fixed deposits to tangible assets like gold and real estate. A significant portion of Indian family wealth roughly 77% is allocated to real estate, a topic of frequent discussion. However, one major drawback of real estate investments is their limited liquidity. In this blog we will know different aspects of reits in India, how to invest in reits in India, top lists of reits in India and many more!

Real Estate Investment Trusts (REITs) tackle a number of these issues. REITs are businesses that develop, own, or finance income-producing real estate. They provide a means of investing in real estate without needing large sums of money, which is especially helpful in pricey locations like Metro and Tier 1 cities.

Infrastructure and real estate play vital roles in India’s development, receiving consistent support from the government. A well-planned infrastructure attracts foreign investments and supports economic growth. The growth of the real estate sector, coupled with corporate development, drives demand for office spaces and accommodations, requiring additional financing options like REITs.

What are REITs in India?

Real Estate Investment Trusts (REITs) are a sensible investment option that have drastically altered the Indian real estate market. REITs pool the funds of multiple investors to invest in income-producing real estate that presents opportunities for both capital growth and steady income. This investment choice offers transparency and liquidity because REITs are required to distribute 90% of their income to investors in the form of dividends and are listed on markets that are similar to those for equities. Both small and large investors can purchase REITs, which primarily focus on office properties in India, for as little as INR 10,000–15,000. Using this investment tool as an alternative makes getting involved in the real estate market easier and more flexible.

How to Invest in REITs in India

Via stock exchanges: REITs are listed on stock exchanges and can be bought and sold using a Demat Account, just like ETFs. Demand and performance determine price changes. Among the popular options in India are Embassy Office Parks REIT, Mindspace Business Park REIT, and Brookfield India Real Estate Trust.

Just a few domestic mutual funds in India buy real estate investment trusts (REITs). Investors may also wish to consider investing in the Kotak International REIT Fund of Funds in order to gain exposure to international real estate.

In terms of IPOs: Investors who have researched REIT IPOs and are aware of the risks are welcome to participate. Prospective investment opportunities will arise from new initial public offerings as the Indian REIT

Investment Process:

Research and Education: Recognize the fundamentals, varieties, and functions of REITs in a portfolio.

  • Select a Strategy: Choose REITs that align with your investing goals, time horizon, and risk tolerance.
  • Select Platform: Direct purchases, mutual funds, or brokerage accounts are your options.
  • Compare Options: Look at REITs based on their dividends, geography, management, and financial performance.
  • Monitor Market: Stay up to date on market trends and real estate developments.
  • Invest and Keep an Eye on: Invest in REIT units and do frequent portfolio reviews to ensure that your holdings align with your financial goals.

Embassy REIT: A Prime Example

Overview: The first Real Estate Investment Trust (REIT) in India to be listed on a public stock exchange is Embassy REIT, which was founded in 2017. The Embassy Group is its sponsor, and its focus is on high-end office space in key Indian cities. The portfolio, which comprises of 9 office parks and 4 city center office buildings, has a strong occupancy rate of above 90%. The primary industry sectors comprise the majority of the tenant pool.

Financial Performance: Embassy REIT has demonstrated a consistent dividend payout and growth in net asset value (NAV). Following the company’s ₹175 per share initial public offering (IPO) in 2017, its share price has surged dramatically. It is currently trading at ₹384.85, up 120% as of February 20, 2024.

Factors Influencing Performance:

Positive qualities include high occupancy rates, a broad tenant base, strong demand for Grade A office space, and a capable management team. Negative factors include increased competition, rising interest rates, economic downturns, and regulatory changes.

Investors should consider these factors in addition to the company’s performance and market trends when evaluating Embassy REIT as a possible investment.

List of REITs in India

There are several REITs available in India. Some of the prominent ones include:

  • Embassy Office Parks REIT
  • Mindspace Business Parks REIT
  • Brookfield India Real Estate Trust
  • Nexus Select Trust

Detailed Profiles of Selected REITs

Embassy Office Parks REIT:

Embassy Office Parks REIT is the first publicly traded Real Estate Investment Trust (REIT) in India, having been founded in 2017. Its primary ownership and management responsibilities include a portfolio of superior office parks and city center buildings located in Bengaluru, Pune, Mumbai, and the National Capital Region. As of September 30, 2023, the company’s portfolio consisted of 42 buildings with a combined total area of 45.4 million square feet.

Mindspace Business Parks REIT:

The second publicly listed REIT in India was established in 2017 and is called Mindspace Business Parks REIT. It is the proprietor and manager of a number of excellent business parks, the majority of which are located in Chennai, Hyderabad, Pune, Mumbai, and Hyderabad. As of September 30, 2023, the company’s portfolio consisted of 17 buildings with a combined total square footage of 10.7 million.

Brookfield India Real Estate Trust:

In 2019, Brookfield India Real Estate Trust was established as the country’s third publicly listed real estate investment trust. It is the proprietor and manager of a collection of superior office and retail buildings located in significant Indian cities. As of September 30, 2023, the company’s portfolio consisted of 12 buildings with a combined total square footage of 13.3 million.

Nexus Select Trust:

Founded in 2023, Nexus Select Trust is the fourth publicly listed REIT in India. This is a multi-asset real estate investment trust (REIT) with holdings in wind farms, hotels, and retail complexes. As of December 31, 2023, the company’s portfolio consisted of 14 buildings with a combined total square footage of 12.2 million.

Conclusion

The REIT sector in India is evolving, and in the next years, new REITs ought to be launched. Because they have the potential to provide investors with both steady income and capital development, real estate investment trusts, or REITs, are a good choice for portfolio diversification.

Investing Strategies for REITs in India

Investors in Real Estate Investment Trusts (REITs) may benefit from both short- and long-term investing strategies. Short-term investors want for quick profits through market fluctuations, but long-term investors desire steady income and future appreciation.

Diversification is crucial for risk management in REIT portfolios. Diversity in property types, REIT sizes, and geographic dispersion across many locations helps mitigate risks associated with certain sectors or regions.

Understanding the tax implications of investing in REITs is essential. When a unit is owned for more than 36 months, long-term capital gains are tax-exempt, and the benefits of indexation gradually reduce taxable income. In contrast, a 20% withholding tax is applied on dividends at the source.

In order to maximize returns, investors should assess their risk tolerance, conduct thorough research, and

Future Trends and Outlook for REITs in India

The Indian REIT market is anticipated to grow dramatically as a result of several factors that investors must consider in order to make wise decisions:

Growth Potential: India’s urbanization, economic growth, and corporate activity are driving the need for upscale commercial and industrial premises. This presents significant opportunities for REITs to diversify beyond office assets and into retail, hotels, and healthcare.

Regulatory Impact: Recent legislative reforms, such as the easing of investment rules and the clarification of tax constraints, have made REITs more accessible to regular investors and made the investing process simpler. Government programs to create infrastructure may also improve property values and REIT performance.

Emerging Trends and Opportunities: Investor interest is being piqued by proptech solutions and other technology advancements that streamline property management. Green-rated structures and other sustainable practices are becoming more and more popular. Additionally, there are more and more specialty REITs offering unique investment opportunities that concentrate on sectors such as data centers or student housing.

Conclusion

Real estate investment trusts (REITs) in India provide dividends and portfolio liquidity to encourage new investors to enter the real estate sector. Exposure to real estate through these financial institutions may prove to be highly beneficial, particularly in the case of initial public offerings (IPOs). They also provide liquidity and skilled administration, which makes them a well-liked choice for portfolio diversification. Investors must be aware of the related risks and tax ramifications, though. Indian REITs are anticipated to become more and more popular with investors looking for diversity as the industry expands.

Disclaimer: This information is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor before making any investment decisions.

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