Real estate investment trusts (REITs) are extremely popular in countries such as Australia, Hong Kong, Singapore and the United Kingdom as well as the USA. These investment trusts offer a tax efficient way to invest in real estate in a vehicle which is tradable on open markets. It is also a very interesting way to gain exposure across different markets with relatively small amounts of capital.
Real estate investment trusts are a pure play on real estate assets therefore you might wonder why India, with its large population, is not more prominent. It would be wrong to suggest that REITs are not popular within India but outside of the country there is some scepticism. India has for some time attracted an unwanted reputation for corruption across the whole political spectrum.
Indeed only recently the Indian government attempted to crack down on money-laundering and undeclared assets to the detriment of the real estate market in the short term. It is this determination to tackle alleged corruption which should help large investment companies to create tradable REITs outside of India. There are many overseas investors who would like to increase their exposure to the Indian real estate market under the watch of professional asset managers. Will they soon get a chance?
Homeownership and REITs in India
Headline figures suggest that homeownership in India is around 87% although due to the structure and the make-up of the market this is not necessarily directly comparable to counties such as the US, UK, etc. However, there is no doubt that real estate investment is in great demand across the Indian population.
One of the only real concerns regarding the creation of tradable REITs outside of India, but investing in Indian real estate, is the lack of sizeable portfolios for asset managers to acquire. The market is very fragmented although while difficult to gain sizeable exposure to the residential market, the business property market is very different. Indeed many worldwide investment houses are increasing their exposure to Indian offices and corporate properties. As the population grows, as disposable income increases and demand follows suit, there are high hopes for the Indian economy.
Is this a turning point for the Indian real estate market?
As we touched on in some of our recent articles there is no doubt that the Indian real estate market is undergoing a significant restructuring. Various government policies have laid the foundations for strong growth although perhaps one only concern is the fact that sometimes these changes are introduced retrospectively or “overnight”. The worst thing that markets like to face is uncertainty and confusion therefore perhaps the Indian government may need to be a little more structured when making changes in the future?
The Indian economy will play a major role in the worldwide economy in the short, medium and longer term. Issues such as alleged corruption, money-laundering and undeclared assets are currently being addressed by the authorities and good progress is being made. Therefore, it does look as though there are some strong foundations on which to release an array of REITs with exposure to the Indian real estate market.