Cash-strapped Indian real estate are getting hopes due to REITs
REIT or the Real Estate Investment
Trust was launched for the first time in India. There has been a positive
response by the low in cash real estate sector of India as to the initial
public offering that the REIT made.
This first REIT, IPO of Embassy Parks
has been subscribed fully as of Wednesday, which was also the last day of the
initial share sale that lasted for three days, as reported from the stock
exchange data. This REIT is a result of the joint effort between Blackstone
Group, a private equity firm and the Embassy Group.
There were 158 million units at the
rate of Rs. 300 per unit which aggregated up to Rs. 4750 Crore for this REIT,
as on Wednesday. This Embassy REIT also has stockholders where the trustee is
Axis Bank, the manager is Embassy Office Parks and the sponsors are Blackstone
and Embassy.
Effects
As for the REITs, they are the
securities that one needs to trade during the stock exchanges. When someone is
new in investing, one can think if the REIT as a mutual fund. REIT can be used
as an asset for the real estate, like a commercial property or a building. This
is different from the mutual fund where the asset is the company’s share,
according to Rushabh Vora, Director of SILA.
Process
When the money is collected from the
investors while buying real estate, it is used for buying the shares of a
company or the bonds by REITs. This leads to leasing of the asset for
developing and generating a yield from it. One can say this is a rental income
for REIT.
After the money acquired from
renting, the cost of operation in these assets are deducted from it. The money
left is the net profit made by REIT in that period of time. These operation
costs mainly consist of leasing, utilities, marketing, managing the facilities
and paying the fees to the trustees and the managers of the REIT.
Even though in India, only the
commercial real estate sector can use REIT. This listing of the first REIT of
India was much awaited, and is certainly beneficial for the real estate sector
which needed more than a decade to yield results. The current over subscription
of REITs is a very positive sign. This has helped in building up the confidence
among the global investors and think of India as a highly potential place for
this sector, along with Honk Kong and Singapore, according to Shishir Baijal,
Chairman and Managing Director of Knight Frank.
This has also led to the increase in
confidence of the buyers and investors, according to Amit Wadhwani, Co-founder
of Sai Estate Consultants.
Progress
Surendra Hiranandani, the House of
Hiranandani’s director stated that the REITs are now seen largely as an
alternative for investment in the Asian countries in the last decade and this
also provides an interest for potential global investors to put their money
here in the hope of benefiting greatly from it. More funds and investment will
be available due to this new market activity. The demand for office spaces
needed will be increasing due to the development of sectors like manufacturing,
logistics and consumer goods, IT services and for the financial and banking
institutions. Due to the fair pricing and the growth of IT companies, places
like Chennai and Bangalore can get an even better advantage of it.
The acute financial crisis has been
greatly dealt with by the REIT, and it has also made the real estate as a
better platform for investment.
Anshuman Magazine, Chairman of India,
South-East Asia, Middle East and Africa, CBRE stated this improvement of
attitude in investment will also increase the funds for developers and may
influence major corporations for lease or invest in buildings as well. The
office sector will be in top, just followed by retail and the logistics sector.
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