Residential and commercial buildings in the Bhendi Bazaar area of Mumbai, India. Photo: Bloomberg
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https://scmp.com/property/international/article/3012918/institutional-investors-look-india-after-successful-debut International
Institutional investors look to India after successful debut of first Reit
- Embassy Office Parks REIT, sponsored by US-based equity investor Blackstone Group and local partner Embassy Group, has risen about more than 17 per cent since its debut on April 1
- Real estate assets in India that qualify for inclusion in a Reit are estimated at 294 million sq ft, or equivalent to potential value of US$35 billion, according to JLL
Embassy Office Parks REIT raised 47.5 billion rupees (US$690 million) through its share sale on the Bombay Stock Exchange, pictured. Photo: Twitter
Investment funds are eyeing India as a destination for building up stakes in real estate investment trusts (Reits), attracted by the prospects for its vast commercial and office holdings.
In April, India successfully listed its first domestic Reit, in what amounted to the largest offering of its kind in the region.
Embassy Office Parks REIT raised 47.5 billion rupees (US$690 million) through its share sale, sponsored by India’s Embassy Group and US-based equity investor Blackstone Group, according to the listing prospectus posted on the website of the Securities and Exchange Board of India (SEBI).
The Reit has assets estimated to be worth at least 314.8 billion rupees (US$4.5 billion), including office, hotel, and retail properties. The Embassy REIT portfolio is located in four gateway cities in India namely Bangalore, Mumbai Metropolitan Region, Delhi NCR, and Pune, with 16 assets such as the tech parks Embassy Manyata, Embassy Oxygen, Embassy Galaxy, Embassy Techzone, and FIFC.
Embassy Office Parks REIT closed at 352.05 rupees in Mumbai trading on Friday, reflecting a gain of 17.35 per cent from its offer price of 300 rupees per share since its trading debut on April 1.
JLL also estimated that in the three years to 2021, additional space that could qualify for Reit would be 101 million square feet.
“The listing of India’s first Reit was one of the most awaited events for the real estate sector as it has taken over a decade and a half to come to fruition. The oversubscription of the Reit is therefore a very encouraging sign for the real estate sector at large and especially for the commercial segment,” said Shishir Baijal, chairman and managing director at Knight Frank India.
The Reit was 2.57 times oversubscribed, as investors bid for 183.5 million shares compared to the 71.3 million shares on offer, according to Reuters.
“This positive response to the Reit will help build further confidence among global investors and attract them to consider India along with its global peers such as Singapore and Hong Kong,” said Baijal.
China is also expected to list its first batch of Reits this year or next, with the market potentially worth more than 12 trillion yuan (US$1.7 trillion), according to a 2017 report by Peking University's Guanghua School of Management.
The Philippines and Vietnam are also on track to roll out their first Reits, according to JLL.
“Despite all the market uncertainties, commercial real estate is still attractive as an asset class. Reits seem to be a quick way to allow more capital to come into the commercial real estate market, and government and companies would like to take the opportunity to launch Reits and raise capital in the process,” said Patrick Ma, director, listed products and research at Hong Kong-based Admiral Investment.
India attracted US$21.7 billion of institutional investment in real estate from 2014 to 2018, more than double the US$9.4 billion investment in the previous five years, according to JLL.
About 40 per cent of the funds were channelled into office space, with investors including Brookfield Asset Management and Singapore’s sovereign wealth fund GIC.
US fund Capital Group committed US$125 million as an institutional investor in the Embassy Office Parks REIT.
Embassy Manyata is a business park owned by the Embassy Office Park REIT. The development, slated to be completed between 2021 and 2022, comprises commercial, retail and hotel spaces. Photo: Handout
Other anchor investors in the Reit include Fidelity Funds’ Asian Special Situation Fund, Morgan Stanley France SA, Citigroup Global Markets Mauritius and Schrider Asian Asset Income Fund, according to The Wall Street Journal.
The SEBI has already approved a number of institutional funds to proceed with their Reit applications, or to continue to invest as developers and real estate investors. These include Nikko AM Straits Trading Asia, North Carolina Fund, Hwang Asia Pacific Reits and Infrastructure Fund, Eastspring Investments and Canada-based Sentry Global.
Embassy Techzone, located in Pune, comprises six buildings and a proposed additional development area. The complex is owned by the Embassy Office Park REIT. Photo: Handout
“JLL Research has conducted an analysis of Reit-worthy assets in office space in India. We believe office projects with single ownership, larger floor space and good occupancy rates would be the favoured assets for the Reit,” said Samantak Das, chief economist and head of research and real estate intelligence services at JLL India.
Das said India has 294 million square feet of office space with a value of US$35 billion eligible for inclusion in Reits.
JLL said Indian cities such as Bangalore, Mumbai, and Delhi should enjoy sustained gains in office rentals and capital values in coming years because of rising demand and limited supply of quality office space.