Real Estate developers building commercial properties, including office blocks and retail malls, are increasingly looking to lease their properties than selling them on outright basis or monetising them through lease rental discounting (LRDs), given the imminent opening up of REIT market in India.
The possibility of better valuation and control through this new option of liquidating their commercial assets is holding back even developers, which have so far stuck to the strategy of either complete or strata monetisation, from selling properties on an outright basis. The office market has been growing steadily since the past few years and we expect the trend to continue. In such times, rental yielding asset owners might want to hold their properties and enjoy better valuations and also list them through REIT rather than monetise them at a go.
However, the launch of the first REIT seems to be at least 2-3 quarters away and the success of initial REITs will decide the fate of this market in India. Realty developers who also used lease rental discounting to monetise their commercial assets along with outright model are now keen to create a portfolio that can be listed under a REIT.
The entire project, including retail and some residential component, is estimated to be completed in the next two years.
Some builders that used to sell offices on outright basis earlier have trimmed their portfolio that is being sold now on expectations of better valuation through REITs later.
In the backdrop of an ongoing transformation in business environment, Indian real estate, especially commercial real estate, is witnessing a robust rise in investment inflow as both foreign and domestic institutional investors are infusing more funds into the sector. Large global institutional investors, including Blackstone Group, Brookfield Asset Management, GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority, have already been investing aggressively in this segment over the past few years.
Listing of leased commercial realty portfolios under the real estate investment trusts would provide the liquidity option to these investors in the future.
In addition to this, more funds are eyeing investment and alliance opportunities in the backdrop of recent policy reforms.
While these entities had earlier shown interest in investing in commercial real estate, are they also looking at other realty segments such as residential, retail and hospitality?