The continuous boom in the Indian real estate market and the consistent high returns on investment over the past few years have not only made it a preferred choice of investment for investors, but even made realty equity a profitable venture. Both institutional as well as individual investors are keen on a share of the Indian realty pie, and now even international realty majors with a foothold in India are facilitating the inflow of foreign investment into real estate companies. Post 2012, the Indian real estate sector has seen a flood of foreign funds, thanks to encouraging entry points for the investors. With the rupee depreciating considerably in a short span of time and commercial properties especially being available at attractive costs, foreign investment through the private equity (PE) route witnessed more than 40 per cent jump in 2013 over the previous years.
Realty stocks allow investors to participate in large-scale real estate projects without having to inject massive amounts into non-liquid investments. They also circumvent the inherent complexities of real estate development in the country and give average investors access to a large array of office, retail and hospitality real estate projects, which would otherwise be out of their reach.
“Moreover, the investor does not have to actively manage any properties. For someone looking for a passive real estate investment with the added benefits of portfolio diversification and liquidity, an investment into a realty stock or a private equity fund is certainly a good option,” says Ramesh Nair, Managing Director-West India, JLL India, adding that real estate development companies with realistic projections and predictable incomes are far less volatile than most stocks. However, investors need to ensure that the company is professionally managed and that investment decisions are taken with circumspection.
On the Reit track
Meanwhile, a handful of real estate consultancies are engaged in private placement of equity with the country’s leading developers. And this flood of funds from abroad has the potential to multiply if the government and regulators open up the market and allow Real Estate Investment Trusts (Reits) to set shop in India. “Where Reits in the US have a value of $140 billion and even the latecomer Malaysia has $1.5 billion in Reits, India is yet to start off the block,” says Anshuman Magazine, CMD, CB Richard Ellis, adding that allowing Real Estate Mutual Funds (Remfs) is the first step towards institutionalising the funding for the real estate sector and will not only go a long way in generating low-cost funds for the booming sector but allow retail investors a new opportunity to invest in real estate companies. “Thousands of crores have been injected into the Indian real estate sector through the private equity route in the past few months, giving a major boost to the realty sector,” says Magazine, adding that Remfs will also give retail NRI investors an opportunity to invest in Indian real estate without taking huge loans to bridge the deficit and without physically acquiring the property.
The Securities and Exchange Board of India (SEBI) has already issued a notification for introducing Reits in India and it is widely expected that the equity-driven instrument will be allowed in India by mid 2014. Though currently the minimum amount for PE investment is Rs10 million (about Dh608,000), SEBI has proposed to bring it down to Rs200,000 (about Dh12,173) to encourage smaller investors. “With the possibility of Indian Reits taking off, and India’s core commercial assets yielding comparatively high rentals among emerging markets, it would seem that India is presently poised to make the best of the opportunity headed its way,” says Magazine.
Realty stocks are a great option not only for local investors but even for NRIs. The Indian growth story has yet again demonstrated to NRIs that investing in their homeland is probably the best option right now. While real estate in the West and in the Gulf is appreciating at a snail’s pace, Indian properties — as well as realty stocks — are appreciating much faster. Even as the overall return on Indian equities in the past year have been impressive, the returns on realty stocks have been striking, with many of them nearly doubling the money in less than a year. “And NRIs have been key individual investors in realty stocks, either directly or through international funds,” says Harish Doshi of Epic Securities.