There has been an announcement in the recent Budget allowing Foreign Portfolio Investors to invest in debt securities of Real Estate Investment Trusts or REITs and Infrastructure Investment Trusts or InvITs. This is a welcome and a positive step for InvITs and REITs as it now opens up an alternative source of funding for the sector plus be able to access large pool of debt capital at competitive prices. It will also benefit the Foreign Portfolio Investors as it opens up a new investment channel for them to invest in the country. Large global institutional investors have been requesting the government for a long time to allow REITs and InvITs to raise debt from foreign investors and this new regulation amendment will provide a huge push to the real estate and infrastructure sector. Investment by foreign portfolio investors and insurance companies in these instruments are suitable to their liability management needs as it matches with their credit and risk profile . Experts tracking the sector feel that this move will significantly bring down the cost of funding for REITs and InvITs and improve the yield for investors . The budget has also exempted dividend payments on REITs and InvITs from TDS making it more lucrative, bringing in more transparency and reducing administrative costs for the sector. Earlier, dividend received from REITs and InvITs were taxfree in the hands of investors but got changed last year. However, the government later changed the amendment but with a caveat that if REITs and InvITs pay a higher rate of corporate tax then the dividend received is tax-free in the hands of recipient. Currently in the REIT space, there is Embassy Parks REIT and Mindscape Business Park REIT listed on the stock exchanges while there are 2 listed InvIT entities such as IRB InvIT Fund and IndGrid Trust respectively. Apart from the Brookfield REIT IPO which is currently open for subscription, there are many others in the pipeline such as Tata Realty, DLF Realty, Powergrid InvIT, etc which will hit the markets for raising capital from investors. Infrastructure projects have been facing huge challenges due to inability of traditional financing institutions and NBFCs to provide long term funding because of asset liability mismatch and liquidity issues . Analysts tracking the sector expect a $60 billion investment opportunity in the next couple of years. Indian retail Investors looking at traditional investments like fixed deposits, post office schemes, bonds etc can park a small amount in purchasing units of the 4 listed REITs and InvITs from the stock exchange. In a reducing current interest rate environment where options are limited, retail investors can invest in these tax-efficient instruments for reasonable income payouts and capital appreciation. Our pick would be to invest in IndGrid InvIT Investment Trust by buying their units from the stock exchanges.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.