REITs lose the right choice tag
(Ecomonic Times, The (India) Via Acquire Media NewsEdge) Jan. 4--NEW DELHI -- They were supposedly one of the hottest investment avenues last year. But REITs or real-estate investment trusts seem to have disappeared from the lexicon of fund managers and realtors. Not surprising, considering the simultaneous slump in the property and stock markets.
REITs were being talked about as the perfect blend of mutual funds and real estate that spared investors of the pangs of daily fluctuations in share prices, allowed them small-ticket investments in the fast growing property market, and helped diversify their portfolio. For the realtors, it offered an alternative platform for raising capital.
In 2007, when Sebi had first mooted the introduction of REITs, both the property market and the stock market were in a grip of euphoria. "The global liquidity squeeze made the REIT plans unfeasible for real estate players. There is no doubt, REITs would have been one of the best exit routes for them," says Jones Lang Lasalle Meghraj chairman and country head Anuj Puri. "The benefits of REITs for retail investors also were many: easy entry and exit, better transparency, and smaller ticket size. If you want to invest, say, Rs 50,000 in real estate, you won't get any asset for this small amount, but with REITs it's possible," he said.
REITs are popular in many mature markets like US, UK, Japan, Australia and Singapore, and were expected to make inroads in emerging markets like India in 2008. In fact, the concept is in its infancy stage in most parts of Asia. The US, the largest single REIT market in the world, has close to 190 REITs registered with Securities and Exchange Commission (SEC) managing assets in excess of $400 billion. Globally, the market mayhem had wiped $160 billion off the market capitalisation of global REITs in the first half of 2008. New REITs are being delayed, or scrapped altogether.
Most Indian real estate companies such as DLF Assets, Unitech Developers and Omaxe were planning to list their REITs in Singapore in 2008. They hoped to raise more than $2 billion from the listing. Unfortunately, none of them were able to see the light of the day.
"If any company is tapping the market to raise funds, it is via private equity route. At present, there are no REITs in India. Nor is there a policy on it. So, companies were exploring more mature markets like Singapore to float REITs. But with the huge correction in Indian and global markets, companies had to shelve their plans. We will wait for sentiment to improve before finalising our plans," says Unitech India GM-Corporate Planning and Strategy N Nagaraju.
So if the chips were down this year for REITs, the immediate future too doesn't look very bright. As experts feel it will take a while for capital markets to stabilise and investor sentiment to improve. "For 2009, we don't expect any pleasant surprises on Indian REITs as we feel there is still some pain left in the market. We don't see any improvement on the market front at least in the first half of 2009. Though, we can expect a REIT legislation in place in the new year," adds Mr Puri.
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