Whilst the markets have given a warm reception to infrastructure investment trusts (InvITs) and a spate of InvITs are in the pipeline, the fate of real estate investment trusts (REITs) remains to be seen. REITs still haven’t taken off and there is a degree of morbid scepticism around the success of a REIT. The reasons could be as follows.
First, from an investor perspective, the investor base in a REIT is likely to be offshore insurance companies, pension funds, sovereigns etc., which would want to hold the asset for long term and earn stable income. For such investors, the prospect of capital growth may be a consideration, but not a driver. The average yield in prime commercial real estate in India can range 7-9.5% on an optimal tenancy basis with an annual escalation or capital growth of about 5% year-on-year. Together with capital growth, the annual return expectation can be in the region of 12-14% on a gross basis in rupee terms.
