REITs attractive, but separate asset class

Mumbai: Experts are of the view that Real Estate Investment Trust (REIT) must be classified as a separate asset class because many investors are unsure of the company's nature and obtaining finance has sometimes proven difficult.

Not to mention that REIT is an asset with 'phenomenally low' short-term betas but generates attractive returns both from distributions and capital appreciation. Apart from liquidity (all

Indian REITs must be listed on exchange), it also provides a steady stream of dividend income along with a sense of pride in owning physical, real estate assets. REITs must distribute at least 90 per cent of their net distributable cash flow (NDCF) to investors.

Attending a panel discussion, which was conducted by Misra Centre for Financial Markets and Economy at the IIM Ahmedabad recently, Mike Holland, CEO of Embassy REIT (India), said, "SEBI has been helpful and accommodating, adjusting regulations to suit the investors." He also felt that REITs have been increasingly popular among investors in the United States, Asia, and India, in particular. The US has seen a surge in the share of institutional investors. Mike observed that it is reverse in India. SEBI encouraged larger institutional participation in REIT investment during the initial years as retail investors gradually learn about REITs over time. At the Embassy IPO in 2019, there were about 4000-unit holders in terms of numbers, which has multiplied several times since then.

"So, we're seeing a very rapid acceptance and understanding of the REITs as a product. And that's resulting in increasing numbers of shareholders. But in terms of value, it is still very, very much an institutional product, both domestic institutions and international", he explained.

Moderating the panel discussion, Prof Prashant Das, Associate Professor of Real Estate Finance at IIM Ahmedabad, said that the real estate markets are not efficient. As a result, risk-reward trade-offs in real estate may differ from our typical understanding derived from general finance. In the US of 1960s, only bigger investors had access to the big-ticket commercial real estate investments that promised low risk but higher returns. This was unfair to a retail investor who couldn't afford to invest in commercial real estate. With that motivation in mind REITs were introduced in the US REITs which were originally intended to bring such investments to retail investors, he said. The panelists discussed how REITs were perceived by investors in the United States, Asia, and India, in particular.

Dr Barry Bloom, President and COO, Xenia REIT, USA, stated that since REITs have been introduced in the US for a long time, it is mostly considered as a part of the broader equity market.

Prof Masaki Mori, Associate Professor, EHL Lausanne, Switzerland, speaking on how Japanese REITs (JREITs) and Singapore REITs, which began in the 2000s, have changed over time, stated that the start of JREITs was a little slow and bumpy due to the global financial crisis, but it picked up speed with the help of the Bank of Japan and Abenomics.