REIT IPO: Even as real estate investment trust (REITs) have been a popular investment instrument across the world, India has witnessed its first initial public offering (IPO). Since this financial instrument is new in India and, no historical data available, many investors are not sure whether to invest in REITs. Though this new investment avenue has many similarities with the real estate mutual funds, REITs have some distinct features which set them apart from the latter. Before investing in a REIT, the investors must know what REIT is and where they invest.
Global private equity firm Blackstone-backed Embassy Group is expected to raise Rs 4,570 crore through this REIT issue. Retail investors will be able to invest in the IPO between March 18 and 20, 2019. The price band is Rs 299-300 and the investors would be able to bid for a minimum of 800 units or the minimum amount of about Rs 2.4 lakh.
REITs invest the proceeds collected from the investors in real estate projects directly, while mutual funds buy shares or other financial products from the primary or secondary markets. According to Sebi rules, currently REITs can invest only in commercial projects in India. Jitendra Solanki, a SEBI-registered investment expert, told Zee Business Online that, “REITs can be a good investment option for the investors, as they invest in commercial realty projects, in which income flow is steady, thereby giving them good returns. Though this is the first REIT in India, globally this financial instrument is very popular among the investors. The return on these investments is expected to be around 8-9 percent. Therefore, it may not be a good investment option for aggressive investors.”
In most of the foreign countries, REITs are allowed to invest in residential real estate, but in India investment in this segment is not permitted. Maybe this is due to opacity in this segment, Solanki said. “Now there is only one REIT, when more of these instruments will be launched, real estate-focused mutual funds may put money in them,” he said.
Ankur Dhawan, Chief Investment Officer (CIO) at PropTiger, said,”Whether one should put money in REIT depends on investment outlook. For the risk-averse investors, it is a good option to put money, because the return of REITs depends on income generated from the rental income. Many pension funds have invested in it due to stable income.”
Dhawan said that this REIT has invested in some commercial properties with steady rental income, therefore, it can give stable income to the investors. Unlike mutual funds, the income flow of a REIT comes fro rental income from a property invested in.
“It is just like investing in a commercial property which earns rental income. However, for a small investor it is difficult to accumulate that much money to buy a property, therefore, they can buy units from a pool of bigger pie of property,” he said.