Whilst the markets have given a warm reception to infrastructure
investment trusts (InvITs) and a spate of InvITs are in the
pipeline, the fate of real estate investment trusts (REITs) remains
to be seen. REITs still haven't taken off and there is a degree
of morbid scepticism around the success of a REIT. The reasons
could be as follows. First, from an investor perspective, the
investor base in a REIT is likely to be offshore insurance
companies, pension funds, sovereigns etc., which would want to hold
the asset for long term and earn stable income. For such investors,
the prospect of capital growth may be a consideration, but not a
driver. The average yield in prime commercial real estate in India
can range 7-9.5% on an optimal tenancy basis with an annual
escalation or capital growth of about 5% year-on-year. Together
with capital growth, the annual return expectation can be in the
region of 12-14% on a gross basis in rupee terms.
