Real estate investment trusts (REITs) are expected to thrive with changing interest rates and their move into different asset classes. Experts suggest that as interest rates, currently at their peak, are likely to decrease, it could positively impact REIT prices. Investing in Indian REITs might be attractive due to the quality and diversification of assets, the tenant profile, and the developer portfolio.
REITs, which are relatively new in India compared to other investments, are set to benefit from the expected shift in the interest rate cycle. According to Piyush Gupta, managing director of capital market and investment services at Colliers India, lower interest rates can lead to increased REIT prices, offering stable returns compared to the stock market.
Diversification is seen as a key strategy for REITs, with a focus on additional asset classes such as industrial spaces, data centers, hospitality, healthcare, and education. This diversification is expected to contribute to the growth of REITs in the evolving real estate landscape in India.
Experts also highlight the potential comeback of the office real estate market in 2024, which could further benefit REITs. With an anticipated 20 percent growth in office space absorption, REITs are positioned favorably.
The recent amendment to SEZ rules is expected to boost occupancy levels, particularly in Grade A Business Parks, presenting opportunities for the establishment of new REITs and the expansion of existing ones.
Why consider investing in a REIT? It is seen as a hybrid fixed-income instrument that provides a regulated and diversified platform for regular income and potential capital appreciation over a 3-4 year period. Despite challenges, investing in REITs beyond traditional stocks and bonds is considered a sustainable long-term option, offering a return of at least 10-12 percent annually.
Investment decisions, however, depend on individual interests and risk tolerance. While REITs are listed on the exchange, they exhibit relatively low liquidity and higher volatility compared to traditional fixed-income instruments, requiring a minimum investment horizon of at least three years.
Since the onset of the pandemic, India’s listed office REITs have demonstrated a strong track record of dividend payments and regular distribution. The growth potential of REITs in India extends beyond commercial office assets to include other classes such as industrial warehousing and retail malls.
Currently, the occupancy rate for REITs in India is 86 percent, with Embassy Business Park REIT, Mindspace Business Park REIT, and Brookfield India Real Estate Trust showing consistent dividend payouts despite global headwinds.
Experts recommend considering the quality of assets, diversification scope, tenant profile, and the sponsor’s ability to grow the REIT portfolio while making investment decisions in REITs. Despite the current challenges, REITs remain an attractive option for those seeking long-term, stable returns in the Indian real estate market.