Introduction of Real Estate Investment Trusts (REITs) is expected to be a game changer for Indian commercial real estate sector. It is expected to complete the commercial real estate development cycle and help provide the required liquidity. However, there are several taxation and regulatory issues which makes investment through REITs hostile with respect to pricing and asset quality compared to direct real estate investment and other investment asset classes.
It is estimated that India has about 350 million square feet of ‘Grade A’ office space valued at about USD65-70 billion. These properties are largely concentrated in seven major urban centers namely Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Kolkata and Hyderabad. Of the total Grade A assets, about 80-100 million square feet is estimated to be eligible for REITs in the next 2-3 years valued at about USD15-20 billion. High rental yields and moderate capital appreciation, together makes India a bright spot among
global investors, which is evident from significant foreign capital inflow
witnessed in last few years. Apart from these ‘Grade A’ office space, there are
host of other commercial properties such as shopping centers, retail malls,
hotels, industrial warehouses, and hospitals which are eligible for REITs.
REITs are likely to infuse additional transparency and liquidity in the Indian real estate market. With rising interest among local developers showing to list Indian asset offshore, especially in Singapore Stock Exchange, setting up of REITs framework in India is likely to attract such markets onshore and also increase depth of Indian capital markets. From a private equity perspective, REITs may create exit opportunities for developers and existing investors allowing them to move completed assets to REITs and improve the long-term liquidity in the market.
© 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.