News Highlights:
NSE Indices Limited, a subsidiary of the National Stock Exchange, launched India’s first-ever Real Estate Investment Trusts (REITs) & Infrastructure Investment Trusts (InvITs) Index.
Nifty Reits & InvITs Index:
- About
- Nifty REITs and InvITs index aim to track the performance of REITs and InvITs publicly listed and traded on the NSE.
- The weights of securities within the index are based on their free-float market capitalisation subject to a security cap of 33% each. The average weight of the top 3 securities is capped at 72%.
- The Nifty REITs and InvITs Index has a base date of July 1, 2019, and a base value of 1,000. The index will be reviewed and rebalanced every quarter.
- The launch of the Nifty REITs and InvITs Index aligns with NSE’s vision to provide market representative benchmarks for different asset classes.
- It will track the performance of publicly listed REITs and InvITs and act as a benchmark for active funds.
- Top Components:
- The top constituents of the Nifty Reits & InvITs index include Embassy Office Parks Reit, Powergrid Infrastructure Investment, Mindspace Business Parks Reit, and India Grid Trust.
- The index has 57.5% weight to Real estate, 35.6% to power, and 6.8% to services.
What is REIT?
- About:
- A Real Estate Investment Trust (REIT) is an investment instrument that offers proportionate ownership of an income-generating real estate asset to retail investors.
- A REIT is a company that owns and typically operates income-producing real estate or related assets.
- In simple language, it is a company that allows individuals to invest in large-scale, income-producing real estate. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.
- REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership – without actually having to go out and buy commercial real estate.
- In India, REITs were introduced by the SEBI in 2007.
What is Infrastructure Investment Trust?
- About:
- An InvITs is a Collective Investment Scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as a return.
- InvITs are listed on exchanges just like stocks — through Initial Public Offering (IPO).
- InvITs are regulated by the Securities and Exchange Board of India (SEBI) (Infrastructure Investment Trusts) Regulations, 2014.
Role of REITs and InvITs in future of Indian infrastructure:
- The Government of India launched InvITs and REITs to bring long-term yield capital into the country and to increase private participation in infrastructure and real estate.
- The Government’s National Infrastructure Pipeline estimates a funding requirement of over US$1.4 trillion by 2025. REITs and InvITs have raised capital of over US$4 billion in India. The combined market cap of the three listed REITs in India is over US$7 billion, and over US$10 billion for InvITs. Thus, the early trends of performance of REITs and InvITs are encouraging.
- The private sector investment of US$325 billion in infrastructure would be necessary to meet the National Infrastructure Pipeline’s estimate. InvITs play a key role in monetising existing projects in some of these sectors (with conducive regulatory frameworks, cash flow profile, and taxation advantage) to allow for capital recycling and further investments under PPP modes.
- The real estate sector in India is expected to reach a market size of US$1 trillion by 2030. Despite the near to medium-term headwinds from COVID-19, long-term drivers for real estate demand are strong and likely to withstand current adversities. The REIT/InvIT route could mitigate several investment challenges in the infrastructure sector. For example, when REIT/InvIT helps developers release their invested equity and deployed capital in new projects, they could enable the challenge of projects with high CapEx demands.
Why need InvITs and REITs?
- Infrastructure and real estate are the two most critical sectors in any developing economy.
- A well-developed infrastructural set-up propels the overall development of a country.
- It also facilitates a steady inflow of private and foreign investments and thereby augments the capital base available for the growth of key sectors in an economy, as well as its own growth, in a sustained manner.
- Given the importance of these two sectors in the country and the paucity of public funds available to stimulate their growth, it is imperative that additional channels of financing are put in place.
Pic Courtesy: Freepik
Content Source: Financial Express