HNIs, sovereign funds latch onto REITs in yields chase

October 16, 2020 | The Economic Times

MUMBAI: Sovereign funds and wealthy investors are buying into real estate investment trusts (REIT) that offer relatively more attractive returns and are perceived to be safer than bonds – at least on paper. 

The listed units, such as Mindspace or Embassy, are trading at about 10-20% premium to their listing prices. This is in addition to periodic interest payments, yielding 6-7.5% post tax returns. 

Since the first week of August when Mindspace Real Estate Investment Trust NSE -4.92 % (REIT) was listed, the units jumped more than 10% to Rs 304 from Rs 275, show data compiled by Bajaj Consultants. It offers 7.25-7.50% post-tax returns. Interest is paid either semi-annually or quarterly. 

Investors keep receiving such interest income unless s/he sells the units in the secondary market. 

“REITs are gaining popularity in record low interest rate regime,” said Shivam Bajaj, director at Bajaj Consultants. “While the route is now the primary way for developers raising money, investors too earn relatively higher returns, backed by tangible collaterals.” 

REITs own, operate, or finance income generating real estate. They pool capital from investors making it possible to earn dividends from real estate investments without having to buy or manage the properties themselves. 

Debt money market mutual funds are yielding about 6% pre-tax in one-year returns, show data from Value Research, a Delhi-based analytics firm. Returns are 6.34% for medium duration debt funds. 

“Long term pension funds and investors are keen to explore the fixed yield generating assets in India,” said Rajesh Narain Gupta, managing partner, SNG and Partners. 

“Developers should take a clue and ensure works class constructions and developments with no violations to attract foreign capital and rewarding exits,” said Gupta. 

Embassy Office Parks was the first REIT to be floated and was listed on April 1 last year. It is now trading at a one-fifth premium to the issue price. 

“We have been receiving a lot of queries from investors seeking information on REIT investments,” said Vikram Dalal, managing director at Synergee Capital. “If you have surplus money, you can invest about 5-8 percent in those listed units earning higher than the average returns in debt investments.”