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Real estate sector is one of the booming industries in the Indian market, but due to a shortage of funds, it has been facing several roller-coaster rides. But cutting through all the odds, the launch of the first Real Estate Investment Trust (REIT) of India and its initial public offering (ICO) have brought a new ray of hopes for the cash-strapped Indian Real Este market.
On Wednesday Embassy Office Parks REIT was successfully listed and fully subscribed by the retail sector. The primary stakeholders of Embassy REIT include the Axis bank as its trustee, and the sponsors are Blackstone, Embassy, Embassy Parks. According to the stock exchange reports, the Embassy Office Park is a joint venture between the Blackstone Group, a private equity firm, and the Embassy Group.
As per the US Internal Revenue Code, REIT functions like the mutual fund’s organizations especially dealing with income-generating assets, thereby specializing in real estate mortgages and real estate sector. It is a security which is traded on the stock exchange platform. Thus for any new organization planning on investment, REIT will work like a mutual fund with its underlying asset in real estate such as commercial property or buildings.
Using the fund received from investors, REIT will purchase bonds or company shares. REIT further acquires a yield from the leasing or assets or operations or any development. The profit of REIT is generated after coast of operation is deducted from the net income, and this cost of operation includes running the facilities, marketing, utilities, leasing along with the fees paid to the trustees and REIT managers. However, in India, REIT only functions for the commercial real estate sector.
Soon after its launch, REIT has received much appreciation from several private equity firms. The owners of these firms believe that the oversubscription of REIT is an indication that it will fuel the real estate sector and especially the commercial real estate sector. REIT will further aid in building confidence amongst global investors and attract global leaders for considering India along with other global peers. With REIT, several retail investors are now confident about purchasing and investing in the Indian commercial real estate sector.
REIT is therefor that investment tool which has by far proved to be an essential choice for alternative investment for several Asian countries and generate revenue and now it will as well instigate a new wave of market opportunities with higher availability of investments and funds for the Indian real estate sector.
The REIT is believed to boost the demand for office space from the marketing industries, logistic sectors, IT hubs, along with the financial and banking institutions, especially for the markets in Chennai and Bangalore. REIT is the knight in shining armour for industries facing acute shortage of funds and will as well propel a better investment platform to generate adequate revenue. Although now the office sector will dominate the REIT listing, soon it will be followed by the logistics and retail industry in the long run, thus opening large scale avenues for the real estate sector in India.
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