PropShare Podcast: ‘Launching India’s first REIT’ with Vikaash Khdloya, CEO, Embassy REIT

 Property Share, India’s first and largest platform for commercial real estate investments, released their podcast episode titled ‘Launching India’s First REIT with Vikaash Khdloya’ as part of their ongoing PropShare Podcast series. The episode, hosted by Kunal Moktan, Co-founder & CEO of Property Share, delves into the promising future of REITs in India and their potential to elevate the country’s commercial real estate sector in the years to come.

The esteemed guest in this enlightening episode is Vikaash Khdloya, CEO of Embassy Office Park REITs. Throughout the podcast, the two industry experts shed light on how REITs made an entry into India’s real estate industry and blurred the line between institutional investing and retail investors, giving rise to a liquid and transparent way to invest in real estate for Indians. The Indian REIT market has seen significant growth, with inspiration drawn from Singapore’s REIT management model.

Key perspectives from the experts:

 

Mr. Kunal Moktan, Co-founder and CEO of Property Share, India’s first and largest platform for commercial real estate investment

“Every asset class that has an underlying predictable cash flow can be converted to a REIT. REIT is a great way to participate in a portfolio of high-quality buildings with high-quality tenants like Google, Microsoft, etc. at a fraction of the  price, which works great for retail investors.

Mr. Vikaash Khdloya, CEO of Embassy Office Park REITs, India-based real estate investment trust

“REIT is not a real estate play. Indian REITs are a play on the tech talent of India”.

 

Key takeaways from the podcast:

  • REIT is a substantial 2.5 trillion dollars asset class in the US and has already gained significant traction in other regions around the world. In 2014, SEBI introduced the draft regulations for REITs in India
  • SEBI had to adapt the regulations to suit the Indian context, drawing inspiration from Singaporean REITs, where the management teams are external. In contrast, in other parts of the world, including the US, REITs are managed internally
  • Globally, REITs are predominantly yield products, offering fixed investment returns. However, in India, they represent a yield plus growth product due to rental rates being below the market average
  • REITs hold a diverse portfolio of cash-generating assets, encompassing office, retail, warehousing and residential properties, which provide stable and predictable cash flows
  • REITs present an excellent opportunity for retail investors to access commercial real estate assets. They offer liquidity, tax efficiency, robust governance, and professional management
  • The introduction of REITs allowed retail investors to access a previously illiquid real estate market, creating a more efficient marketplace for this asset class
  • SEBI’s efforts in establishing norms related to party transactions, distribution percentages from free cash flows, sponsor commitments, minimum investments, and other aspects have brought much-needed transparency and regulation to the previously unregulated real estate market
  • REITs provide diversification and risk reduction compared to investing in individual properties
  • Participating in a portfolio of high-quality buildings with prestigious tenants like Google and Microsoft at a fraction of the cost is one of the compelling advantages of REITs
  • Indian REITs are not merely a real estate play but also a reflection of India’s tech talent. Global companies are establishing their presence in India not just due to cost advantages but also because of the availability of skilled professionals in areas like product engineering, R&D, and data analytics
  • Initially, Indian investors lacked awareness of REITs as a product, leading to greater participation from global investors during the IPO of Embassy REIT. However, the scenario has changed, with the involvement of domestic institutional investors and retail investors having grown significantly over time
  • The growing retail investor base and the recognition of the great potential in REITs by both the market and regulators have positively impacted all parties involved, benefiting investors and operators alike
  • India holds dual structural advantages with low costs, including rental and labour costs, making it an attractive destination for companies offshoring work. Additionally, India’s young and skilled talent pool is a significant advantage
  • The trend of large global companies offshoring work to India has increased, leading to greater demand for high-quality office spaces
  • Bangalore stands out as the premier office market in not just India but the whole of Asia, boasting a large number of global captives and global companies. The city attracts substantial STEM talent and is a major player in the market
  • When evaluating potential acquisitions or constructing new buildings, the focus is on creating products that meet the demands of global occupiers, considering factors such as location, talent accessibility, and social infrastructure, as talent is core to the business
  • The escalating costs of construction have made existing built-up spaces more valuable for operators or landlords, as they are worth more than new assets produced at higher costs
  • As the Indian market matures, we can expect more REITs to be established, leading to higher compliance, better quality properties, and increased emphasis on wellness-oriented ESG practices from both employers and end-users
  • Any asset class with a predictable underlying cash flow has the potential to be converted into a REIT