After a long wait, India’s first real estate investment trust (REIT) went for an Initial Public Offering (IPO) on Monday. The IPO, which is open from Monday to Wednesday, by Blackstone-backed Embassy Group seeks to raise Rs 4,750 crore from the market. Embassy Office Parks, a joint venture between Blackstone and Embassy, had in September last year filed the draft red herring prospectus (DRHP) with market regulator Sebi to launch the REIT. This is Asia’s largest REIT in terms of portfolio size.
Embassy Office Parks, a leading player in commercial real estate, has put 33 million sq ft of office and hospitality assets under its proposed REIT comprising of seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.While investors are still weighing potential returns from this instrument, realtors are quite upbeat about its positive spillover effect on the realty sector, since it will open it up for the participation of individual investors.
What is a REIT?
According to HDFC Securities, REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. Modelled like mutual funds, REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive and revitalize.The stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property.
Win-win situation
Realtors say this is win-win situation for both builders and the investors. According to Rajesh Goyal, MD, RG Group and Vice President, CREDAI NCR, “It will definitely provide investment in the sector. Apart from Delhi NCR, the cities that might see maximum traction will be Bangalore, Pune, Amritsar, Ahmedabad, Indore and Chandigarh.”
REITs will also open the option to invest in commercial properties and assets to retail investors. “With this launch, investors will now have access to lucrative assets like commercial properties and retail, which was earlier out of reach for individual investors. There will be increased institutional and retail investor participation,” Amit Raheja, CMD, WealthClinic.
While the draft guideline was issued by October 2013 by Sebi, lack of clarity on the tax implications on the income earned prevented investors from exercising their options which forced SEBI to make many amendments, the latest one reducing the minimum investment limit in REIT Rs 50,000 from Rs 2 lakh.
Opening the gates