Embassy REITs a low risk investment choice

REIT is an investment tool that owns and operates rent yielding real estate assets. It presents an excellent opportunity for Indian investors of an alternative investment option to earn a regular income plus get reasonable capital appreciation over medium to long-term investment horizon. Undoubtedly, India’s REIT market has tremendous investment potential but has to ride the wave of teaching potential investors. This asset class can be categorised as a low risk product providing reasonable dividends and capital appreciation. By selling stabilised assets to REIT’s, developers can unlock capital that can be more effectively deployed in new developmental projects. While the central premise of a REIT is real estate liquidity, these products are necessary for every economy to foster growth of a healthier capital market.  Being an emerging market, office real estate in India has been witnessing considerable growth higher than the mature REIT markets. Unlike developed REIT markets where distribution yield are generally 100-200 points higher than the treasury yields with little growth, REIT shareholder returns in India shall be a healthy combination of distribution yield and reasonable growth /capital appreciation. India’s first Real Estate Investment Trust , the Embassy REIT made its debut in the Indian market in April this year and went on to make a flying start. It opened up an avenue for Indian retail investors to obtain a share of real estate, without owning it. It is a joint venture between the Bengaluru based real estate company, Embassy and the private equity giant Blackstone group. India’s first public issue of a REIT offering was priced at Rs 300 per unit and received good response from both retail and institutional investors, managing to raise as much as Rs 4,750 crores. The maiden REIT issue saw big international institutional investors like Fidelity, TT International, the Capital Group etc participating in the public  offering. Embassy office park REIT is Asia’s largest REIT in terms of portfolio size of 33 million sq ft. In nine months time frame , the Embassy REIT unit price has jumped from Rs 300 to Rs 425 giving a whopping over 40% absolute return. The company is in the process of raising fresh capital to the extent of Rs 3,600 crores through secured debentures in the near future. We feel that Embassy REITs are a low risk investment choice and can generate decent returns for Investors looking for an alternative investment avenue.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.