Indian REITs - USD 18 bn Opportunity

With the Budget 2016-17 clearing the key hurdle of Dividend Distribution Tax (DDT), it has paved the way for REITs/ InvITs to see the light of day. We expect the 1st REIT/ InvIT listing in CY17.

As per Jones Lang LaSalle, REIT-able Grade A office space totals ~229 msf in India across 727 assets. Conservatively assuming that ~50% of this is REIT-able and an average sub-dollar rent of Rs 70/ psf, it would translate into a USD 18 bn of REIT value creation potential (based on a cap rate of 8% and an exchange rate of Rs 65/ $) Mumbai, NCR and Bangalore collectively account for 2/3rd of REIT-able assets

A number of Joint Venture (JV) platforms have been created recently between PE investors and established developers to invest in Indian commercial real estate.

• Standard Chartered and Tata Realty & Infrastructure to create a Rs 30 bn investment platform, to buy commercial assets across the country. Standard Chartered’s share in this JV to be Rs 20 bn.
• Goldman Sachs and Nitesh Estates announced a 74:26 JV with a commitment of Rs 18.5 bn from the former
• Warburg Pincus and Embassy Group announced to invest USD 175 mn and USD 75 mn respectively in a JV that would focus on building warehouses across the country

With new absorptions expected to surpass new completions over the next 2 years, rentals are expected to inch upwards from current levels. Expected improvement on portfolio yields makes this an opportune time  for investors to invest in REITs