Mumbai: Real Estate Investment Trusts (REITs) have gradually gained popularity and have successfully established themselves in the investment portfolio of the Indian market. We can expect it to play a larger role over time, given its ability to deliver high returns from both income and capital appreciation.
The Misra Center for Financial Markets and Economy, IIM Ahmedabad, a unique center for applied research on Indian financial markets and economy, recently organized a panel discussion on REITs: “Surviving the Pandemic and the Way Forward”, which provided insights from industry experts on how REITs as a distinct asset class have evolved globally and how they have managed to outperform despite the pandemic. The session was co-organized by Prashant Das (Associate Professor, IIM Ahmedabad) and Vivek Sah (Director – Lied Center for Real Estate, UNLV).
Prashant Das said, “Indian real estate has attracted disproportionately little attention from academics despite offering great opportunities for the industry. At IIMA, we are working to fill this gap.” REITs were originally launched in the United States in 1960 to give all investors, especially small investors, access to income-generating real estate. Since then, REITs have grown rapidly around the world, especially from the 1990s to the present day (today, countries hosting REITs account for nearly 85% of global GDP).
The share of REITs in the commercial real estate market in the United States was once around 2%, but now it is between 10% and 20%. John Worth, Executive Vice President, NAREIT (Washington DC), presented on the US REIT market, stating that approximately 44% of US households own REITs. According to a Morningstar assessment, the REIT portfolio allocation ranged from 5% to 15%, with the riskiest portfolio accounting for 13%. “…and so by being able to go out, collect data, bring that data to market, you can bring the level of fear down.” John discussed the importance of institutions such as NAREIT in times of crisis, such as Covid-19. Communication and coordination with relevant ministries is essential in times of crisis.
According to Alok Aggarwal, MD and CEO of Brookfield Properties (India), “despite the outbreak, most major commercial property developers have collected 99% of their rents in the last two years.”
Citing a recent study by Nasscom, where 73% appreciate the flexibility offered by technology and working from home, and 75% yearn to return to the office, experts believe that offices are here to stay and there will be a change. systematic change with a greater focus on environmental, social and governance (ESG) standards, technology and innovation. With the recent advent of WELL certification, the focus will not only be on the sustainability of the building, but also on the health of the people who work in the office environment. Aggarwal also believes that if the REIT sector matures, we might expect an entity similar to NAREIT in India.
With the changes in the social dimension, the relevance of ESG has also increased recently. Aggarwal distinguishes between REITs and Private Equity Real Estate (PERE) by stating that they are fundamentally different in terms of risk and return. Given the wide variety that REITs offer, they can protect investors to some degree over time. “We need the next generation of industry leaders to be made aware of this investment vehicle that is bringing Indian real estate to the global stage. REITs are already included in our curriculum at IIM,” Abhiman said. Das, president of the Misra Center for Financial Markets and Economy. .