Do you invest in real estate? Check this out

Posted on January 17, 2024 by supriya

Over $5.8 billion in institutional investments were made in 53 deals in the real estate sector in 2023, a 14% increase from 2022. Demonstrating India’s resilience in the face of global economic headwinds. Investor confidence in the Indian growth story is expected to persist through 2024, according to JJL India report titled “Investing in Tomorrow: The Real Estate Journey of 2023.”

With a 63% stake in the total investments in 2023, foreign institutional investors made up the most contributors. The Americans, historically the most to investments, saw a sharp decline to 23% of total investments from a peak of 43% in 2022.

Nonetheless, domestic investors saw a sharp rise in market share, with 37% of all investments made, up from an average of 19% over the preceding five years.

With 81% of all real estate investments made, equity remained the predominant type of investment. Non-core assets make up 53% of all transaction volumes.

According to the report, the office sector will continue to be the most favored industry in 2024.

With a 52% share of the investment pie, the office sector by a wide margin. Residential and warehousing came in second and third, respectively, at 13% and 16%. The amount of capital flowing into the office sector increased by 61% in 2023, from $1.8 billion in 2022 to $3 billion in 15 deals.

Emerging industries to draw capital

In the upcoming years, many institutional investments will go toward emerging industries like student housing, data centers, and warehousing. Institutional investors in India have been paying more attention to student housing as an asset class. There is a big chance for institutional investment in this space because of the rising number of students going to college and the rising need for high-quality housing.

Institutional investments in India in 2023 appeared unaffected by inflation or unclear global economic trends. The trend of investments surpassing $5 billion has persisted since 2018. The US and Canada’s investment activity has decreased due to various rate increases in the Americas. Nonetheless, the APAC area made a sizable contribution in 2023. The outlook for the Indian economy is still favorable, and we anticipate this positive trend will last into CY 2024, according to Lata Pillai, senior managing director and head of capital markets at JLL India.

Pillai continued, “The India growth story will continue to be robust, driven by its inherent strengths and continued focus on economic development, even though the upcoming elections may cause delays in decision-making.”

Platform Assertions

Furthermore, $2.8 billion in platform commitments to invest over the following few years was made public in 2023. Platform commitments decreased significantly (by 38%) from 2022, the year with the most growth in platform deals—a 174% rise from 2021.

The global economic slowdown has impacted investor sentiment toward long-term commitments despite increasing investments. With an investment capacity of more than $1.8 billion, Ivanhoe Cambridge and Mapletree struck the largest platform commitment deal in the history of technology-led offices in India last year.

Exploiting public market opportunities with REITs.

Real estate businesses and investors now have more ways to access public markets in India thanks to the introduction of REITs, which provide regulated investment structures and liquidity.

The first retail Real Estate Investment Trust (REIT) in India, Nexu Select Trut REIT, was listed in 2023. Anchor investors responded favorably to the IPO, absorbing 45% of its total size.

The last two REITs, Brookfield REIT and Nexus Select Trust REIT saw a rise in participation from domestic institutional investors, indicating a growing level of interest and confidence in the Indian REIT market. In 2023, Blackstone sold its 23.5% stake in Embassy Office Parks REIT for $850 million, or Rs 316 per unit, and left the REIT.

Bain Capital, ICICI Prudential MF, and Capital Group were the top three purchasers, acquiring stakes ranging from 7 to 9%. The robust reaction from institutional investors suggests that this real estate investment tool is becoming increasingly popular and that real estate is beginning to institutionalize.

2024

The nation’s growth trajectory has generally benefited from the government’s efforts to advance infrastructure development and bring structural reforms. Experts in the market believe that this growth will continue and that investors will continue to feel optimistic about India’s growth story.

Shortly, the outlook for private equity investment in the Indian real estate market is anticipated to remain positive, having recently improved.

However, it will be crucial to closely monitor the trends in capital flows going forward into 2024. The capital flow slowdown observed in the fourth quarter suggests the potential cautious approach investors, especially those with foreign experience, may take in 2024.

Investors may become more risk-averse and careful when making real estate investments due to long-term uncertainty and monetary tightening in developed countries. The upcoming elections may cause delays in decision-making, but overall market sentiment remains positive.

How might real estate investors benefit from SEBI’s approval of small and medium-sized REITs?

Posted on November 28, 2023 by supriya

SEBI’s decision to encourage investments in Small and Medium REITs (SM REITs). The REITs (Real Estate Investment Trusts) Regulations, 2014, were amended yesterday by the SEBI board. These amendments aim to establish a regulatory framework that will facilitate the establishment of SM REITs, which will have an asset value of at least Rs 50 crore as opposed to the existing REITs’ minimum asset value of Rs 500 crore. The decision received approval at the Securities and Exchange Board of India (SEBI) meeting in Mumbai.

Experts in the industry welcomed Sebi’s decision to regulate fractional ownership of real estate. “We applaud SEBI’s progressive move in regulating the fractional ownership framework with the amendments to the REIT Regulations,” stated Aryaman Vir, CEO of WiseX, “as the pioneers of the Fractional Ownership model and neo-realty investments in India.”

The Small and Medium Real Estate Investment Trusts (REITs) aim to significantly expand the market so that more retail investors can own a fractional interest in REIT units, according to Madhabi Puri Buch, the Chairperson of the Sevi. She added that the regulator is willing to consider developing more goods of this kind.

The CEO of WiseX praised SEBI for recognizing the expanding trend of fractional ownership platforms and expanding regulatory oversight.

“We think it will guarantee investor protection, standard disclosure procedures, and a strong redressal mechanism in addition to stimulating investor interest in the real estate sector,” he continued.

Vir went on, “In addition, investors looking for more accessible entry points into real estate ownership will have exciting opportunities thanks to the lowered minimum asset value of Rs 50 crore for small and medium REITs. SM REITs’ ability to establish distinct schemes enhances the flexibility and inventiveness of real estate portfolio structuring. We anticipate that these regulatory changes will positively impact the ecosystem of fractional ownership, encouraging greater diversity and inclusivity in real estate investments.”

Real Estate Investment Trust In India

Posted on September 13, 2023 by supriya

Real Estate Investment Trusts (REITs) are entities that own, operate or finance income-generating real estate.

REITs are derived from mutual funds. It can be a great way for investors to pool their capital. REITs make it possible for investors to earn dividends from real estate investments without worrying about having to buy, finance, or manage any properties themselves.

FEATURES

A REIT must invest at least 75% of its assets in cash, treasuries, or real estate, according to the SEBI regulation.
REITs must pay shareholders dividends that are at least 90% of their taxable income.
Investors can get monthly dividends and/or interest payouts, providing consistent income, while also receiving capital gains through the sale of REIT units on stock exchanges.
REITs trade on public markets; they are simple to buy and sell, which helps to offset some of the traditional real estate disadvantages.

Advantages of REITS

Liquidity: Most of the REITs trade on public stock exchanges, which are easy to buy and sell, which adds to their liquidity aspect.
Diversification: REITs allow their investors to diversify their real estate holdings, as REITs are usually traded on stock exchanges.
Balanced Dividend Income: It is said that investing in REITs can provide substantial dividend income as well as a stable capital appreciation for investors over the long term.
Transparency: REITs are required to file financial reports that are examined by professionals as they are regulated by SEBI, which allows investors to be aware of information like taxation, zoning, and ownership. This makes the whole process quite transparent.
Safety: Investing in REITs makes investors accrue risk-adjusted returns and steady cash flow.

Limitations of REITS

No Tax Benefits: The dividends earned from REITs are subject to taxation, so when it comes to tax savings, REITs are not much help.
Market-linked risks: REITs are liable to be influenced by market movements, and this can be a major risk for investors, as they may receive less than they originally paid for their shares if they sell them on the public exchange.
Low Growth Expectations: The acknowledgment of capital in the case of REITs is a bit low because they mainly return 90% of what they have invested to the investors and the rest, 10%, is reinvested in the venture.

Factors to Consider While Investing in REITs

Portfolio Occupancy Percentage: You should find out what percentage of the completed area is rented out. The occupancy rate is a good indicator of the stability and success of the portfolio.
Tenant Quality and Sectoral Diversification: A strong tenant in a booming sector (IT, Pharma, Manufacturing, etc.) matters, as that reduces vacancy risk as well as the risk of paying rentals late.
Number of Tenants: The larger the number of tenants, the more diversified you are as an investor.
Geographical Diversification of Portfolio: REITs owning assets in different micro markets or cities are better.
Dividend Yield: This shows the health of the managing entity and the portfolio.
Past Stock Performance: Evaluate past performance and increase in stock price over one year, six months, and three months.
Growth in Revenues and Profits of the REIT: There are some big differences due to the accounting treatment of the property.
WALE (weighted average lease expiry): This is the average lease tenure remaining for the tenants occupying the buildings that make up the REIT.

Risks Involved By Investing in REIT

Liquidity Risk: Public REITs allow the investors to sell their shares on the public exchange market, but the investments are less liquid in comparison to the other investments in the market as the liquidity is only provided through the fund repurchase offers and there is no inferior market for buying and selling the properties.
Financial Risk: The investors decided to buy securities with borrowed funds. The use of the financing can cause the REIT to experience additional expenses and increase the fund’s losses in the event of underperformance.
Market Risk: As we discussed above in the article, market risk is one of the major limitations and risks of REITs. The investors may receive less in comparison with what they have paid originally if they sell their shares in public exchange.

4 ways of earning from the REIT

Interest is taxed as per the income tax slab.

Dividends: Some are taxed, and some REITs are not taxed.

Amortization of SPV (return of capital)—non-taxable

⦁Capital gains

Short-term (36 months): 15% of capital gains

Long-Term (>=36 months): 10% of capital gains, over 1 lakh.

Popular REITs in India

Embassy REIT

Embassy REIT owns and operates a 42.4 million square foot (“MSF”) portfolio of eight infrastructure-like office parks and four city-center office buildings.

Brookfield India Real Estate Trust (REIT)

Brookfield India Real Estate Trust (REIT) is a commercial real estate vehicle established in India.

⦁ Properties in Mumbai, Kolkata, Gurugram, and Noida

⦁ In the NCR, 56% of its total assets are located.

⦁ Tenants are blue-chip companies like Accenture and TCS.

⦁ Debt is relatively high at 7.15%, but it’s coming down.

Mindspace REIT

K Raheja Corp Group is the sponsor of Mindspace REIT. With a total leasable area of 30.2 m2, it has a solid portfolio of office spaces across Mumbai, Pune, Hyderabad, and Chennai. Mindspace Business Parks REIT, which is sponsored by K. Raheja Corp. and Blackstone Group,

	Embassy REIT	Brookfield India Real Estate Trust (REIT)	Mindspace REIT
Gross Distribution Yield (The year 2023)	8.38%	9.12%	5.96%
Interest	Taxable	Taxable	Taxable
Dividend Yield (The year 2023)	₹ 26.56/-	₹25.3/-	₹317/-

Which Is The Best REITs to Invest In?

These three trusts are reputable, well-managed REIT trusts in India with comparable long-term growth prospects. Additionally, they make some resounding claims regarding their financial standing.

But if we carefully examine these REITs’ performance metrics, we can see that some of them perform better than others.

Brookfield REIT has the highest occupancy rate and dividend yield of the three trusts. In comparison to Mindspace, Brookfield, and Embassy REITs are more significant in Bangalore (74% of GAV) and NCR (67% of GAV), while Mindspace is more diverse throughout all four main cities. In comparison to other REITs, Mindpace REIT has the largest tax-free distribution (92%). Of the others, its LTV (16.8%) is the lowest.

The perception of an investor may have an impact on the choice. The Mindspace REIT is a well-diversified trust with the largest tax-free distribution that is suitable for HNIs as a good long-term option if you are conservative and take debt investors. If you want your investment to grow in value, go with Brookfield REIT. Taking into account all the significant data, BRIET has a greater likelihood of growing during the following two to three years. Analysis of all the data throughout the years reveals that Brookfield REIT has experienced superior growth and respectable cash flow stability. The Capitalmind figure below demonstrates that, of the three trusts, BRIET is the best choice.

Final Conclusions:

Like a coin with two sides, REITs offer certain benefits and drawbacks. Although it carries some risk, investing in REITs can be lucrative. If you are considering investing in REITs, PropertyWala advises that you check over the research we have done for you to make your task easier. It is highly important to consult an advisor before investing.

Difference between REITs and Direct Real Estate Investments?

Posted on December 22, 2021 by zeeshan

What are REITs?

REITs buy and develop real estate primarily for the purpose of using it in their investment portfolio. REITs or Real Estate Investment Trusts are companies that own and operate properties for the purpose of generating income. Unlike other real estate companies, REIT does not build real estate for resale. These are the companies that manage portfolios of high end properties and mortgages. People can participate in large real estate revenues through REITs.

What is Direct Real Estate Investment?

Direct investment in real estate means buying a particular property at a stake or the acquisition of property from a particular person. This implies a significant share in an asset, whether it is a shopping mall, an office building or an apartment. This type of business allows investors to generate income by rental investment. It even allows you to monetize the valuation of the assets you own. As the price increases over time, you get a significant return on assets.

Key difference between REITs and Direct Real Estate Investment!

Direct Real Estate Investment offers more tax incentives than REITs and also investors have more decision-making power.

– In case of REITs, investors invest their money in a diversified portfolio of commercial real estate assets. But in case of direct real estate investment for commercial offices, investors invest in a single office property only.

– Individual investors can take advantage of real estate through a REIT without the need to own or manage real estate.

– Compared to Direct Real Estate Investment, REITs are easier to buy and sell because many of them are publicly traded on exchanges.

Difference between REITs and Direct real estate in terms of returns!

There is a major difference between the returns of both investments:

– In the case of REITs the ROI will be clearly structured, realistic and risk-free. They are ideal for investors who want a stable income with minimal risk.

– During the time of inflation, property values tend to rise as property prices and rents rise, resulting in higher returns for REIT investors. Realistic ROI from REITs can be expected in the range of 7-8% per annum after adjusting fund management fees.

– REITs must distribute at least 90% of the taxable profits to shareholders, and dividends of 5% or more are common.

How do REIT investors generate income?

Like any other business REIT requires capital. The investors of REITs make money by renting, leasing or selling the assets they buy. Shareholders elect a board of directors, which is responsible for selecting investments and recruiting a team to oversee them on a daily basis. FFO, which stands for funds from transactions, is the most common way of calculating REIT income.

REITs Investors generate following types of income:

– Dividend income
– Price gains after the sale of REIT units
– REITs are a great opportunity for investors who want to diversify their portfolios outside the gold and securities markets. This is a great place to invest if you are investing in real estate for the first time and want to diversify your portfolio without unnecessary risk.

Conclusion:-

A REIT is a good option for investors who do not want to manage real estate, or for those who do not have or can not get the funds for it. REITs are also a great way for aspiring real estate investors. Individual investors can invest in income from owning commercial real estate with a REIT without buying it themselves. Direct real estate investment is good if you want more control over your money and prefer a convenient approach.

Also read:-

Builders have to disclose the status of mortgage loans for apartments

ICICI, SBI, LIC, HDFC, other life insurers set to invest in InvITs, REITs

Posted on April 28, 2021 by zeeshan

This decision of IRDAI will lead to less dependence on banks. And give InvITs, REITs access to more flexible debt financing options. Currently, InvIT / REIT is heavily dependent on banks as the sole source of debt financing.

Major life insurance companies, including LIC of India, HDFC Life, ICICI Life, and SBI Life, are willing to invest in bonds published by Infrastructure Investment Trusts (InVIT). This will provide much-needed long-term financing to the needy lending sector that lends further for the construction of roads, towers, shopping malls, bridges, and other infrastructure.

Last week, India’s Insurance Development and Regulatory Authority (IRDA) approved insurance companies to invest in InvITs and Real Estate Investment Trusts (REITs).

According to fund managers, bonds issued by InvIT or REIT are likely to offer a minimum of 100 basis points more than the vanilla corporate bonds. The REITs or InvITs formed using a pool of assets that are pooled into a special purpose vehicle (SPV) that can sell bonds to increase debt up to 50 percent of net worth.

Initially, the insurance companies can purchase triple-A rated securities, such as NHAI and PowerGrid, with maturities ranging from 5 to 10 years. As the market matures, investors are likely to buy long-term bonds. The insurance company expected to earn 170 basis points more than government bonds with a similar maturity.

Insurer will not invest more than 10% of outstanding debts

IRDAI, on April 22, announced a circular stating that debt securities classified as ‘AA’ and above would be part of the ‘Approved Investment’ category for insurance companies. No insurance company is authorized to invest more than 10% of outstanding debt instruments in a single InvIT / REIT issue.

According to a fund manager, the investment risk is diversified. As InVIT / REIT invests in several SPVs that have full assets and different sources of cash. If there is a hurdle in the cash flow of a single project, others fill the gap by allowing interest payments on bonds.

Experts opinion-

Mukesh Gupta, managing director at LIC of India said, we are definitely considering investment opportunities for InvIT and REIT. Our country needs long-term financing in the sector of infrastructure. By nature it is a long-term investment, therefore, insurance can fill this gap. InvITs and REITs offer a good investment opportunity with very less project implementation risks.

Shivam Bajaj, director at Bajaj Consultants said: This decision of IRDAI will lead to less dependence on banks. And give InvIT / REIT access to more flexible debt financing options. Currently, InvIT / REIT is heavily dependent on banks as the sole source of debt financing. No investments are risk-free, nor are trusts. There is no accumulation of cash reserves to be used in times of stress. As 90% of net cash receivables must be distributed among the unitholders, not the bondholders.

Arun Srinivasan, head of fixed income, ICICI Prudential Life Insurance said: Insurance is a long-term business, making it ideal for investing in long-term infrastructure projects. This will enable this sector to receive more long-term financing from insurance companies. The spreads offered by these structures provide an attractive investment scheme while improving overall portfolio performance in a risk-adjusted manner.