Spurt in REITs may signal revival of realty sector

Spurt in REITs may signal revival of realty sector
The Economic Times, May 20, 2009, Page 17

Supriya Verma Mishra ET INTELLIGENCE GROUP

THEmarked improvement in performance of Real Estate Investment Trusts (REITs) in recent months, including those set up by Indian developers, is being seen as a pointer to an imminent revival in the property market.

Indian property developers’ overseas-listed REITs such as Ascendas, Hirco, Unitech Corporate Park and Ishaan have nearly doubled in value from a year ago even as the FTSE Global Real Estate Indices for Asia, Europe and US have appreciated by 50% since March 2009.

The improved market conditions could also pave the way for the REIT listings of DLF and Unitech, which have been put on hold.

REITs are entities that that own and manage a portfolio of real estate properties. Anyone can invest in a publicly traded REIT, which is seen providing the advantages of liquidity and diversity because it invests in a portfolio of properties.

REITs are currently not allowed in India but the Securities and Exchange Board of India has rules for its implementation. Globally, about $8.7 billion has been raised through REITs in the past few months.

“With a stable government there has been a positive view on the Indian economy in the international market. Residential property will predominate this upturn,” says Hirco Chairman Niranjan Hiranandani.

As stock prices typically discount future events, the upturn in the REIT market can be attributed to an imminent revival in the residential real estate space in the near term. Investment in REITs is becoming increasingly attractive as property prices have declined 30-50% from their peak. This provides the potential for investors to make attractive long-term capital gains while enjoying rental yields in the interim, particularly at a time when interest rates are at historic lows in most countries.