Real estate investors and entities are always looking for their next investment opportunity. India has the potential to become this next opportunity. The country is encouraging private equity fund management as well as individual investors to consider residency – or at least buying property.
International Investments Became Easier
The reason that experts predict a rise for India’s real estate investments comes from new changes to the process. Recent budget announcements make it easier for institutional investors and foreign portfolios to invest; more specifically, the government reduced statutory debt funding requirements.
The change applies to the Real Estate Investment Trust (REIT) opportunities and is specifically designed to make it easier for smaller investors to make a commercial real estate investment. While foundation asset management companies have made similar investments in other countries for years, it is fairly new to India. This type of real estate investment and tax planning trust has been popular for several decades around the world – particularly in developed countries.
High Net Absorption
India has recently seen incredibly high rates of Grade A office space net absorption. This indicates fiduciary potential, even to foreign passport holders. In 2019, there was net absorption of 46 million square feet – one of the highest figures in the world. Even with the pandemic, 2020 saw net absorption of 25 million square feet.
Putting Potential Returns in Perspective
To put the potential returns from REITs in India in perspective, consider how they compare to those in other countries. Typical returns on commercial properties in the best American markets are usually between four and five percent. By contrast, the average in India is seven to nine percent, with some returns reaching 13 percent.
It Will Benefit Indians as Well
The predicted rise in real estate investments in India will also benefit Indians. Because foreign investments were previously rare, most of the current investments are from Indians. Those shareholders and property owners stand to see high returns on their investments as the demand increases.
There will also likely be an increase in demand for Indian fund managers to serve as managers or directors for these trusts. After all, they should be more familiar with Indian corporate taxes and other regulations than foreign investors.
On top of that, Indians who want to invest in REITs will find themselves with a more seamless experience, stemming from the fact that international fund managers with decades of experience will enter the Indian market. Essentially, Indian investors will have access to more professional and experienced management.
Who the Real Estate Investment Opportunities Will Attract?
The new REIT opportunities will likely attract a range of investors, both funds and individuals. Experts predict that pension funds around the world will be particularly interested as most of these funds have guaranteed minimum returns. Despite that, many have struggled to reach those promised returns. They will likely see Indian real estate as the perfect opportunity.
Conveniently for India, these funds already have experience investing in REITs. They simply have not yet invested in them in India, though they have done so in their own countries.
Investors will also appreciate the strict standards for REIT listing norms. These include more than enough checks and balances to reassure investors.
REITs Have Already Arrived
The prediction of an increase in Indian real estate investment is not just speculation: There are already at least three established REITs. These include the Embassy Office Parks REIT, Brookfield Real Estate Investment Trust, and Mindspace Business Parks REIT. The first of these is already the biggest REIT on the continent.
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