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Real Estate Investment Trusts (REITs) in India: A Positive Growth Avenue
Context: India’s REIT market is entering a rapid growth phase, with at least one new REIT expected annually over the next 3–5 years. Rising occupancies, demand from Global Capability Centres, logistics and policy reforms (GST rationalisation and relaxed foreign ownership norms) are making REITs a key driver of real estate financing and investment opportunities in India’s urban economy.
What are REITs?
- REITs are investment vehicles that pool capital from multiple investors to own, operate, and manage income-generating real estate.
- They are primarily regulated by the Securities and Exchange Board of India (SEBI) for domestic operations, while those operating or listing in International Financial Services Centres (IFSC) are regulated by the International Financial Services Centres Authority (IFSCA).
Why were REITs conceptualised?
REITs were conceptualised to democratise access to real estate investments and channelise long-term capital into the real estate sector:
- Institutionalisation of Real Estate: Traditionally, Indian real estate was opaque and dominated by large private investors. REITs bring transparency by mandating disclosures and exchange listings.
- Retail Participation: They provide small investors with exposure to commercial real estate (otherwise inaccessible due to high entry costs).
- Urban Infrastructure Development: As highlighted in the Economic Survey 2020-21, REITs serve as alternative financing channels, reducing dependence on banks and NBFCs.
How do they benefit the Indian economy?
- Boost to Commercial Real Estate: REITs unlock rental assets for developers.
- Foreign Investment: Global investors like CPPIB, Blackstone, and GIC have invested heavily, strengthening India’s position as a real estate hub.
- Job Creation: The expansion of Global Capability Centres (GCCs)—expected to rise from 1,700 to 3,000 in 5–7 years—drives demand for office spaces managed under REITs, spurring employment.
- Capital Market Deepening: By diversifying financing sources, REITs reduce stress on the banking sector (Economic Survey 2019-20).
- Investor Returns: With a compound annual growth rate (CAGR) of ~12% (6–7% from quarterly distributions and the rest from capital appreciation), REITs offer efficient, tax-advantaged returns compared to equities.
- Tax Benefits: They are not typically subjected to corporate income tax as long as they distribute at least 90% of their taxable income to shareholders as dividends.
- National Infrastructure Development: It aligns with India’s $1.4 trillion National Infrastructure Pipeline (NIP).
