Will demonetisation bring ‘achche din’ for REITs?

A REIT is a type of instrument that allow one to invest in income-generating real estate assets. The instrument trades on the stock exchanges like a stock. Additionally, transaction cost in commercial realty may come down and leasing activity is likely to see a spurt. “Commercial real estate has a long gestation period. You have to first build it and then sell or lease it. We expect interest rates to fall further in the wake of rupee demonetisation. This will make lending rates cheaper and players like us stand to benefit.

Additionally, we expect several players to look at REITs to raise funds,” Mayur R.Shah, MD, Marathon Realty, said. Marathon is one of the leading commercial developers in the city. According to a PropEquity report, in the aftermath of demonetisation, market value to the tune of ₹802,874 crore is expected to be wiped off the residential property segment in the next six to 12 months.

According to PropEquity, steady lease rentals, inadequate supply and sustained interest from global PE investors have kept optimism going for India’s commercial real estate sector, even as overall demand has shown some signs of correction in recent months.

Real gainers

After clocking a record absorption of 45.5 mn sq ft of Grade-A office space last year, demand for quality office space has softened this year to reach 25.2 mn sq ft during the first eight months of 2016. Samir Jasuja, CEO and founder of PropEquity said large established developers with significant exposure to commercial real estate, especially grade A development, would be relatively less impacted as they will focus on commercial and office space in this period.

“Developers like DLF and Prestige would be able to weather the storm as they have a large commercial portfolio. There will also be a lot more focus on REITs to unlock value of rent-yielding commercial assets,” he added. Khushru Jijina, Managing Director, Piramal Fund Management, said: “We don’t see any impact of demonetisation on the commercial sector. In fact, we foresee leasing activities increasing as against direct sales transactions.”

Credits The Hindu Business Line

Leave a Reply

Your email address will not be published. Required fields are marked *