Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) in India have experienced a decline in fundraising and attractiveness due to higher yields on bonds, limited availability, and a lack of awareness among investors.
According to data compiled by Prime Database.com, these investment instruments mobilized a total of Rs 1,166 crore in 2022-23, compared to Rs 13,841 crore raised in 2021-22 and Rs 33,515 crore mobilized in 2020-21. The decline in fund mobilization is attributed to a lack of new launches, volatility in the stock markets, and limited investor awareness, according to Gopal Kavalireddi, Head of Research at FYERS.
Moreover, a change in tax rules on distributions classified as repayment could further decrease the attractiveness of these instruments, as it could lead to a substantial increase in tax liability. Manavi Prabhu, Head Fixed Income at Anand Rathi Shares and Stock Brokers, explained that the new tax rule will tax such distributions as “other income” in the hands of the investor, making the instruments less attractive.
REITs consist of a portfolio of commercial real assets, while InvITs comprise a portfolio of infrastructure assets, such as highways and power transmission assets. These instruments provide returns to investors in the form of dividends, and the units also trade on stock exchanges, providing liquidity. However, due to the higher yields on debt, existing listed REITs and InvITs are yielding lower than the sovereign risk-free rate.
While the government and capital markets regulator, Sebi, have actively promoted and popularized these instruments in India, Kavalireddi believes that additional initiatives will be required for increased investor participation, addressing challenges, and realizing their full potential. The fundraising outlook for REITs and InvITs could improve as the market stabilizes and new opportunities emerge.
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