REITs in India: A Story Still Unfolding

What is it about?

REITs are investment companies with shares that facilitate the flow of financial capital to real estate assets. They are fiscally-transparent (flow-through) investment vehicles focused on investing in income-producing real estate. Since REITs were introduced in the United States in 1960s, commercial real estate has been owned increasingly by REITs, allowing small retail investors to buy ownership stakes in large commercial real estate properties. The real estate investment trust (REIT) model of commercial real estate ownership has been successfully implemented in several countries. In particular, developed economies such as the United States, the United Kingdom, Japan, Singapore, and Australia have gained substantial experience with REITs. REITs facilitate the financing of commercial real estate properties from a large pool of investors, including smaller investors. Large commercial real estate properties often exhibit unique return characteristics; REITs make these returns available to retail investors. Introduction of the REIT structure in India is an important step towards the building of a mature commercial real estate market. The move is reflective of increasing appetite for structured financing of investments in commercial real estate assets. It also holds a promise of bringing about some fundamental attitudinal shifts among investors and real estate owners. Indian REITs (IREITs), however, face some fundamental challenges.

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