REITs and InvITs have gained popularity as preferred investment options, with fundraising, through the route, surging 10-fold year-on-year to ₹11,474 crore in 2023, supported by measures taken by regulator SEBI and attractive returns offered by the instruments.
Going ahead, fund mobilisation by REITs (real estate investment trusts) and InvITs (infrastructure investment trusts) is poised for significant growth in 2024, driven by several key factors, including anticipation of rate cuts and introduction of a range of policies aimed at encouraging investments like tax incentives and relaxed investment norms, Claravest Technologies co-founder Manaki Parulekar said.
"This year, we are likely to see interest rates decrease in the first half of 2024 due to the expected drop in inflation. These conditions are favourable for investors who are looking to invest in long-term opportunities, such as REITs and InvITs," he added.
According to data compiled by Prime Database.com, REITs and InvITs collectively raised ₹11,474 crore in 2023 compared to a record low amount of ₹1,166 crore clocked in 2022.
Before that, funds to the tune of ₹17,641 crore were collected through the route in 2021 and ₹29,715 crore in 2020, the data showed.
REITs and InvITs are new concepts in the Indian market but have been a popular choice globally for their lucrative returns and capital appreciation.
A REIT is made up of a portfolio of commercial real estate assets, the majority of which are already leased out, and InvITs consist of a portfolio of infrastructure assets like highways.
Overall, InvITs and REITs have seen tremendous growth. Since the time these were introduced around seven-eight years back, there are 23 registered InvITs and 5 REITs with assets under management of over ₹30,000 crore.
"Since the introduction of investment trusts in the Indian markets, REITs and InvITs have invested tremendous time and effort in educating the investor community of this new investment avenue and the benefits investment trusts provide to both investors via assured returns and visibility of cash flows and infrastructure developers by freeing up their capital to undertake further development," Harsh Shah, CEO of IndiGrid, said.
Additionally, SEBI has introduced various regulations, such as reduction in lot size, enabling bank lending, or increasing leverage to 70 per cent to simplify investment into InvITs, he added.
Claravest Technologies' Parulekar believes that REITs and InvITs present the potential for generating appealing returns as they are mandated to distribute a specific percentage of their income to investors, making them an enticing investment option.
Further, the government's emphasis on improving infrastructure provides additional investment opportunities through InvITs, he added.
All these have helped REITs and InvITs gain popularity as a preferred investment vehicle, which has led to a higher quantum of investments witnessed by this sector.
The markets regulator has been consistently working on amendments to REITs and InvITs to upscale the governance standards while increasing transparency through provisions like Unitholder Nominated Directors, the cap on leverage, minimum rating requirements, higher disclosure measures than companies, various options to raise equity, such as rights, institutional placement in addition to initial public offering (IPO).
Additionally, the Securities and Exchange Board of India (SEBI) has improved the ease of investment by reducing lot size to one or updating the pricing requirements for institutional placements by listed trusts.