Indian REITs seek equity classification for greater investor acceptance

March 20, 2024

Indian real estate investment trusts seek to be classified as equity and included in the equity indices as they look for more acceptability among the expanding investing class, according to the Indian REITs Association, the newly minted apex body for the sector.

At present, units issued by REITs and InvITs are classified as hybrid securities, creating uncertainty in investors’ minds as to whether they fall under debt, equity, or any other asset class, according to Alok Aggarwal, Managing Director and Chief Executive Officer of Brookfield India Real Estate Trust.

Globally, REITs are classified as equity instruments.

Investor acceptability

Being classified as equity removes the confusion from investors’ minds, leading to passive flows as they are included in various indices and become eligible for taxation under long-term capital gains applicable to equity.

Embassy Office Parks REIT’s Chief Executive Officer Aravind Maiya said that equities were easily recognisable instruments, and it would create greater acceptability among small and retail investors.

Securities and Exchange Board of India has progressively relaxed the investment amounts in REITs, and now there is no floor for ticket size.

REITs are a new asset class that came into existence in India with the establishment of Embassy Office Parks REIT in 2019. There are now four REITs, two sponsored by real estate developers and two by global asset managers. Three are office-based, and one is retail.

Real estate portfolio

In their five years of existence, the assets have grown to ₹1.3 lakh crore, have a market capitalisation of over ₹85,000 crore and a real estate portfolio of 115 million square feet.  They have paid out over ₹15,500 crore to their unitholders which is now at around 2 lakhs.

REITs have the potential to become a big asset class in India, with around 400 million square feet of office space that are REIT- worthy and around 70 million square feet of retail space.

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