How REITs Will Be A Game Changer In Indian Real Estate?
The real estate sector is buzzing with activity post the annual budget announcement of relaxed FDI norms and tax incentives for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) in the financial markets. The former initiative has helped bring in new partners for existing real estate companies that were fighting sluggish liquidity. As such, once again there has been a rise in the number of non-resident Indians that were eyeing the realty sector as an investment opportunity.
In fact, according to a recent survey conducted by Associated Chamber of Commerce and Industry of India (ASSOCHAM), the Indian real estate developers are witnessing a surge in the number of NRI inquiries in projects as compared to last year. Major Indian metros have witnessed an increase in overall NRI interest by almost 35 per cent since. The focus of government and real estate developers on affordable housing projects and infrastructural development works also augers well for the real estate sector as NRIs are looking at different ways so as to be part of the Indian realty growth story.
REITs, a perfect investment opportunity for NRIs:
With the financial market watchdog SEBI already issuing guidelines, a number of REITs are likely to be launched in the near future. The introduction of REITs would create a new asset class in the financial markets allowing NRI investors to be part of the infrastructural growth without necessarily having to purchase any physical property.
Many NRIs shield away from investing in Indian real estate markets since they were not able to keep up for the day to day developments of the project and its competition. Also NRIs were more eager to buy a property or land in the city or area of their birth as an emotional investment. While there were other areas or regions offering better results or gains, the NRI was not able to invest in such properties due to lack of knowledge about the area. For example an NRI belonging to Mumbai would purchase a property in Mumbai first even though he or she would want to invest in Bangalore or Kolkata as the markets offered better return on investment. A lack of knowledge about the local markets of either Bangalore or Kolkata made the NRI investor shy away from unknown markets. With REITs in place, the NRI investor can now invest in multiple properties without having to own the physical property.
REITs can allow an NRI investor to simply invest as a financial instrument asset class and earn a compulsory dividend paid out by the real estate companies while holding REIT funds similar to investment in mutual funds. Since REITs will pool money from investors and invest them in income-generating assets like rentals, this makes for a perfect investment option for the NRIs in the coming months. Instead of investing in various properties across multiple cities, a non-resident Indian investor can simply invest in REITs and be part of the growth story of the real estate sector as a whole pan India.
Improved transparency a boon to NRI investors:
With REITs listed on the financial markets, the instruments would have a clear and transparent working mechanism which augers well for NRI investors. The unorganized real estate sector has sometimes made NRIs unwilling to invest in the markets due to lack of transparency in development and completion of the projects under strict norms. With SEBI overlooking all REITs investments, it is no surprise that NRIs are bracing themselves to invest in the Indian realty markets in the near future.
