It's been a long time coming but India's Securities and Exchange Board has finally arrived. The current discussions on investment look at the potential with some degree of wariness. This is a new product for American investors and the a frequently asked question is how can you invest in Indian REITs? The larger question is should you?
The history of Indian REITs
Indian REITs became available in the United States in 1961, but they were not regulated until 2017 with the first offering launched officially in 2019 according to Economic Times. Institutional investors have taken the lead in investment in Indian REITs since 2019 with a renewed fervor.
Initial issues with Indian REITS
The Securities and Exchange Board of India has been working on the draft guideline since October of 2013 for REITs. One of the biggest obstacles to gaining approval remained the tax implications on earned income and Sebi's inability to gain clarity on the subject. It wasn't until March of 2019 that Sebi was able to resolve the issues through a variety of amendments, to make them more attractive to investors. According to Mint, the minimum investment limit was reduced from 50,000 to 2 lakh, but the end result was a number that is over the agreed upon amount.
Can you invest in Indian REITs
India's Real Estate Investment Trusts are currently being eyed as a less volatile investment option in much the same way that American REITs are, but there are a few caveats that may make it difficult to make a purchase of shares at this time. We noted that Nareit does not currently list any Indian REITs in its current available listings. For starters, you must have a demat account in order to make an investment account in Indian REIT products. It's been further advised that Retail investors will likely have a waiting period until mutual funds launch a provision of Indian REIT products as an offering for public purchase. In 2019, Mint indicated that it's "at least a few years away". This may signal delay in the average investor' ability to invest at the present time, but it's coming, so you have time to ponder the question, "should I invest in Indian REITs?"
How to invest in Indian REITs
According to Maacan, after establishing a DEMAT account, you choose the IPO, fill out the form with mention of the DEMAT, account number and code, then bid for no less than 800 units in amounts of 400 units after the initial bid. Non-institutional investors may invest of up to 25% of the issue on the National Stock Exchange and the Bombay Stock exchange. The remaining percentage is left to institutional investors. You must plan on holding the investment for a full three years or you will fall into a situation where capital gains will apply to appreciation.
Rise in the number of Indian REITs
The number of Indian REITs available has been increasing. According to Economic Times, the latest accounting shows that there is an expected growth in Indian REITs with three REITs offered and seven InvIT issuances. Five of them are private with just two public in the country. This indicates that the market has not yet grown in size to allow for many choices at this point in time. The outlook is good for expansion, but this is a process that is going to take time. India threw its hat into the ring a bit late, but it's better late than not at all.
Other positive indicators
Nariet reported that India enacted its REIT legislation in 2014. It was the 31st country to do so, and the rules were similar to those accepted in the United States with a minimum of 90 percent net distributable cash flows returned to investors in the form of dividends minimally, every six months. At least 80% of Indian REIT income must be generated by real estate holdings in order to qualify as an REIT.
Economic Times' analysis of the status has noted that within the major sectoral indices, Indian REITs and InvITs have outperformed and they do provide a stable cash flow with consistent returns for investors, which are a sizable percentage of the profit for each. This is information that is most attractive to investors wishing to avoid implementation/construction risk. Whether or not to invest depends upon the risk management policies made by the issuer. As with any REIT, the terms are not standardized and it's important to have your financial consultant explain the terms of the investment to fully understand all of the implications of the rules, including minimum investment amounts, policies on dividend payouts, and so forth.
Indian REITs are becoming a more popular option because of the stable performance and optimistic outlook for the near future. Our inquiries show that this is a good option for investors who want to bypass as much risk as possible. The prospect for regular stable dividend payments is high, but the availability of public Indian REITs is currently on the low side. This is expected to change as the current trends and status show a high likelihood that the market will continue to expand. Although institutional investors are given preference, there is still space for individual investors to choose Indian REITs, following the guidelines. It's recommended that you consult with your investment advisor prior to investing in Indian REITs to get a more comprehensive picture of the individual trust that you're considering. The answer to the question is yes, you can invest in Indian REITs.
Written by Allen Lee
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