REITs
and InvITs: The Upcoming Investment Tools of Indian Capital Markets
Real Estate Financing in India has traditionally been done by
direct investment i.e. by way of own finances in properties. Only in the last
15 years has there been an exponential growth in properties financed by way of
debt (home loans, extension
loans, loan against property, etc). This has contributed to high volumes
and prices but simultaneously, the real estate assets have been integrated
immensely with the capital markets of the country. The recent NBFC crisis, to
some extent, is a pointer to this gradual yet seamless integration.
In a further growing bond between the two markets (realty and
capital markets) we shall soon see inflow
of large finances in capital markets directed towards real estate assets, since
both the capital & realty markets are gaining maturity over time. The vehicles
that are to make this possible are REITs
(Real Estate Investment Trusts) and InvITs
(Infrastructure Investment Trusts). These Regulations were notified on September
26, 2014 and we currently have 3 InvITs which have gathered Rs. 10,000 crores from the markets and
listed their units on stock exchanges. Additionally, 1 REIT is in the process
of making a public offer and several others are to follow soon.
The inevitability of their future popularity is evident if we look
at the global scenario where the REIT concept is highly popular and still gathering pace. In the US alone, REITs own more than $3
trillion in gross real estate assets. The economic and investment reach of
those assets are felt by millions of Americans all across the country. By this
estimate alone, REITs/ InvIT capitalization in India is set to go up by 300 times in coming years!
In India, several mutual
funds have already incorporated an option to allocate up-to 10% of their corpus
to REITs/ InvITs units as per the amended SEBI rules notified in 2017.
About REITs and InvITs
A REIT is an entity
that owns, operates or finances income-producing real estate. Modeled after
mutual funds, REITs provide all investors the chance to own valuable real
estate and present the opportunity to access dividend-based income and total
returns. They allow anyone to invest in portfolios of real estate assets the
same way they invest in other industries and the stockholders of a REIT earn a
share of the income produced through real estate investment, without actually
having to go out and buy, manage or finance property. InvITs can be
treated as the modified version of REITs designed to suit the specific
circumstances of the infrastructure sector.
Together, REITs and
InvITs have a tremendous scope for use in the finance world and their units can
help raise finances, control assets or to make money by trading in them. These
entities can be used in wide and amazingly varied places– offices, parking, warehouses, infrastructure such as
roads, telecommunications, power generation, utilities, shopping malls, housing
rentals, vacation homes, hotel industry, sports facilities and even prison
facilities– the list can go on. The legislation is changing continually to suit
the needs of Indian market environment so that these vehicles can be fully
utilized (as our understanding of these vehicles/instruments increases in the Indian
context, over time).
Workshop’s Objective
The functioning of these
instruments is different from other financial assets for debt or equity. REITs
and InvITs units are NOT debt instruments as perceived by many. In fact they are
hybrid in nature, replicating features of both debt and equity. REITs units
offer potentially stable returns like rentals from property investment and have
a simultaneous scope for upward movement (property features are reflected in the units
themselves). Due to inherent complexities,
it is essential to understand their financial characteristics as a separate
study.
For example, the growth in debt finance to real estate was
facilitated by the process of securitization since 2000s, which helped many
investors participate in financing real estate for debt based returns. However,
real estate’s asset-level impact on the capital markets through this kind of debt
financing can be seen in the way mortgage crisis of 2008 changed the fortunes
of many nations.
REITs
instruments have high yet stable return potential, but there are also several issues
that need deeper analysis. Due to this typical need, a major change was
witnessed in 2016. The Global Industry Classification Standard or GICS® which was created in 1999 by MSCI and Standard & Poor's for use by the
global financial community was changed -
in 2016, the real estate was added as the
11th sector to GICS and was the
first new headline sector added since its creation. This
event points to two important facts. Firstly, it will be highly desirable to include
real estate assets in a portfolio for both higher returns as well as
diversification (possible due to availability of these instruments now).
Secondly, a proper understanding of the financial characteristics, which differentiate themselves from
other assets, is a must before their inclusion in any portfolio.
A sample of some questions in this context:
·
Are REITs and InvITs units purely
‘debt’ instruments or are these purely ‘equity’ in nature?
·
Are they like ETFs (Exchange Traded
Funds) or are REITs like mutual funds?
·
What differentiates them from
realty stocks like those of DLF /Shobha developers?
·
What are the benefits in terms of
returns?
·
What are the risks and usefulness
for portfolio diversification?
·
How can we achieve miscellaneous
other objectives (e.g. raising finances for large corporations) with these new
and innovative products?
·
What are the challenges that we can
face in incorporating these tools?
The above is only a
primer and there exists a large need-gap in the current scenario of financial awareness
for REITs and InvITs which the workshop seeks to fill.
Who should attend the workshop?
Ø Fund Managers and wealth advisors
Ø Institutional investors
Ø Investment bankers
Ø Real estate companies and real estate consultants
Ø Infrastructure operators and infrastructure investors
Course
Outline
Note: Course outline can be worked out in detail (in
accordance with the hours planned) since workshops are conducted as per requirements of the
participants. You may contact on email below, giving your requirement and details:
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