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  • First India REIT launch on anvil: How it can right the wrongs in real estate sector

    Publish Date: September 24, 2018

    Blackstone Group and Embassy Group are set to launch the first Real Estate Investment Trust (REIT) in India, according to media reports.

    Embassy Office Parks, a joint venture between the two groups, are reportedly planning to raise over Rs 5,000 crore through the REIT.

    If launched, the REIT will be the largest in Asia in terms of size of its portfolio. In fact, the REIT is more than double the second-largest REIT in the continent.

    REITs are a bit similar to mutual funds where money is collected from investors and then invested in commercial properties.

    According to an Economic Times report, the Embassy Office Parks REIT will list 33 million square feet of office retail space in Mumbai, Pune, Bengaluru and Noida. Of this, about 24 million square feet of office space is already occupied, generating Rs 2,000 crore of annual lease rentals. Google, Microsoft and JP Morgan are few of the clients. In fact, Fortune 500 companies account for 44% of the Embassy REIT’s clientele.

    The REIT also has the potential to grow three times the size by adding another 50 million square feet in coming years, as per a Times of India report.

    The REIT is to be reportedly launched before Diwali, though Blacktone and Embassy — who hold 65% and 20% stake, respectively, in the joint venture — are yet to confirm the development.

    Why in it for the real estate sector?

    It is big news for the real estate sector because Blacktone Group, a private equity firm, and Embassy Group, a Bengaluru-based real estate developer, will be the first players to launch an REIT in India, which is almost four years after Securities and Exchange Board of India (SEBI) cleared the ground for REITs.

    The Embassy REIT, if launched, can inject a dose of optimism in India’s cash-strapped real estate sector. The money raised through REITs can help developers complete projects that are stuck in a limbo. It will also help companies monetize their commercial properties.

    The real estate industry, of late, has been crippled by financial constraints due to low inventory sales, weak demand, project delays and cost overruns. The temporary construction ban in Maharashtra, Madhya Pradesh, Uttarakhand and Chandigarh until October 9 has further complicated matters. You can read the full report by clicking below.

    Related read: Real estate sector to be hit hard if construction ban is prolonged

    What’s in it for you?

    REITs are a stable income option and offers regular income from the sale and lease of commercial assets.

    SEBI has mandated that REITs distribute 90% of its income to investors at least twice a year. This suits best for people who need an additional income. REITs, which are viewed as long-term instruments, usually generate 7-9% returns annually.

    It also gives you the opportunity to invest in the real estate market for as low as Rs 2 lakh, which is much cheaper than buying an actual property.

    Other benefits

    Diversity: SEBI mandates that REITs invest in at least two projects, thereby balancing out the risk factor. Further, at least 80% of the commercial properties should be revenue-generating, ensuring people do not take a hit on their investment.

    Transparency: REITs are required to disclose their holdings every six months. Therefore, investors can keep an eye on the performance of REITs from time to time.

    Expertise: REITs will be managed by professionals. Just like fund mangers take care of mutual fund investments, REITs will be overseen by managers who are needed to have years of experience specified by SEBI.

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