Investment vehicles for realty and infrastructure sectors — REITs and InvITs — have garnered Rs 1.3 lakh crore in the past four years till March-end, and are expected to facilitate more pooled funds, Reserve Bank said in a report.
Experts and stakeholders are of the view that with India growing at a fast pace, REITs and InvITs are emerging as alternative investment instruments, especially for high net-worth individuals.
“India has been a late adopter of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). However, the market is flourishing - REITs and InvITs have mobilised Rs 1.3 lakh crore since 2019-20 (up to March 2024),” said an article on ‘State of Economy’ published in the RBI’s April Bulletin.
March witnessed the listing of an InvIT, which raised Rs 2,500 crore through a public issue, attracting substantial interest from foreign investors.
The article noted that market regulator SEBI has progressively reduced the minimum investment size and trading lot, enabling greater retail participation in these hybrid instruments.
To further develop this space, the market regulator notified regulations for small and medium REITs on March 8, 2024.
“This is expected to facilitate pooled investment in a wider range of real estate assets as a regulated financial product, thereby facilitating further growth of REITs in India,” said the article authored by a team led by RBI deputy governor Michael Debabrata Patra.
Rajeshwar Burla, Senior Vice President and Group Head - Corporate Ratings, ICRA, said the RBI allowed banks to lend to InvITs, which along with security enforcement for lenders under the SARFAESI Act, are some promising steps taken in recent times.
“Thanks to a conducive regulatory framework, and a strong pipeline of good operational assets, the industry was able to mobilise over Rs 1.3 lakh crore since FY2020. InvITs and REITs helped unwind capital blocked in already operational infrastructure assets — which can be re-invested into under-construction projects and support infrastructure development in India,” said Burla.
Indian REITs Association said SEBI’s progressive regulations, particularly the reduction in lot size to bringing it on par with other listed companies to buy even single units has transformed REITs into an attractive asset class for retail investors.
“This has not only enhanced accessibility but also ensured liquidity, allowing reach to a broader investor base... We are also actively collaborating with SEBI on multiple fronts, including global benchmarking of best REIT practices, standardising financial reporting and disclosures, and addressing other regulatory requirements, amongst others,” the Association said in a statement.
A REIT is made up of a portfolio of commercial real estate assets, the majority of which are already leased out, and InvITs consist of a portfolio of infrastructure assets like highways.
Co-Founder and CEO of YOURS, a platform for fractional ownership of luxury second homes, Sudeep Chandran said it is true that India was a bit late in allowing REITs, yet in the last couple of years it has gathered momentum particularly from HNIs.
“The continuous rise in monthly inflows reflects this momentum. The recent SEBI guidelines on SM REITs provides another option to savvy investors. We anticipate significant investor interest in SM REITs, driving substantial growth in combined REIT and SM REIT investments over the next 3-5 years,” Chandran said.
Commenting on these investment instruments, Ritesh Kumar Shyam, Partner, M&A Tax & Regulatory Services, BDO India, said REITs and InvITs have picked up quite some traction in the domestic investment market given that these assets offer fixed income with a secured asset base and the returns are generally better than other secured asset investments.
