In a move to regulate the fractional ownership industry, the Securities and Exchange Board of India (Sebi) has issued regulations to amend the REIT Regulations 2014, to establish guidelines for creation of Small and Medium Real Estate Investment Trusts (SM REITs), the notification said.
The new regulations will be called Sebi (REIT) (Amendment) Regulations 2024, it said.
“In regulation 2, in sub-regulation (1), clause (zm) shall be substituted with the following, namely -”(zm) REIT” or “Real Estate Investment Trust” means a person that pools rupees fifty crores or more for the purpose of issuing units to at least two hundred investors so as to acquire and manage real estate asset (s) or property (ies) , that would entitle such investors to receive the income generated therefore without filing them the day -to-day control over the management and operation of such real estate asset (s) or property (ies),” the notification said.
This means that under the arrangement, an SM REIT will be permitted to gather funds starting from ₹50 crore by issuing units to a minimum of 200 investors that will be utilized for acquiring and managing real estate assets or properties.
Also Read: Have a crore to invest in a second home in Goa? Here’s what you should know
The amendments were approved by SEBI on November 25 last year.
This is also expected to open the doors to fractional ownership of rent yielding real estate assets, including uber-luxury second homes across the country.
Also Read: Have a crore to invest in a second home in Goa? Here’s what you should know
A REIT is a company that owns, operates, or provides financing for income-generating real estate properties.
They currently need to have an asset base of ₹500 crore. These pool funds from investors, directing them toward various commercial real estate ventures. They are similar to shares and are listed on stock exchanges.
There are only three office REITs in India – Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust.
Also Read: Commercial real estate market has the potential to increase REIT market size over 6 times: ICRA
Rising debt costs and shrinking valuations are forcing major commercial property developers to sell millions of dollars worth of assets.
Precinct Properties has sold about $700m worth in the past 18 months, while hospital developer Vital Healthcare has sold $220m worth and Argosy just sold $20m worth.
“When interest rates revert as fast as they have, and when values come down, and we’ve seen in our business probably 7 or 8 per cent reduction in values, then you’ve got to stay in front of it,” Precinct CEO Scott Pritchard told Markets with Madison.
“We’ve been managing our levels of debt through asset sales and through capital partnerships and through raising new capital.”
The largest listed office developer and owner had drawn down $1.1 billion worth of debt, paying an average interest rate of 5.3 per cent – surprisingly less than most mortgagors.
That’s because it didn’t just rely on banks for funding. Precinct was now partnering with offshore investors including Singapore sovereign wealth funds, private equity firms and high net worth individuals.
“The key is to have a really diverse source of funds and to have a really laddered maturity profile, which is all the lessons that a lot of businesses learned out of the GFC to be honest.
“If we get other sources of capital to invest alongside us, it means we can do more things and ultimately drive a higher return for our shareholders.”
It was a strategy Vital was now considering too – seemingly a potential funding solution in a higher interest rate environment.
Pritchard said offshore investors were especially keen on residential property, which was driving Precinct’s push into developing apartments on Auckland’s waterfront.
But would that impact Precinct’s future net rental income, currently earned on offices?
Watch Scott Pritchard discuss how developers are managing debt in today’s episode of Markets with Madison above.
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Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
WiseX, a neo-real estate investments platform that facilitates fractional ownership, has launched a rent-yielding investment opportunity in Pune and plans to raise more than ₹80 crore from it.
Sky One Corporate Park houses tenants such as Vertiv, Kantar, Piaggio Vehicles, Sincro and the investment deal covers the 58,661 sq. ft. leasable area on the 9th floor which is leased to Vertiv.
With a minimum investment starting at ₹25 lakh, this institutional asset will offer an entry yield of 9.6 per cent and an average rental yield of 9.5 per cent per annum.
The company is expecting to achieve a target IRR of 15.1% over a 5-year investment period.
Also Read: Have a crore to invest in a second home in Goa? Here’s what you should know
“We have been working to secure this asset for more than two years and are very excited to finally be able to offer it to our investors. WiseX (Previously MYRE Capital) pioneered fractional ownership in the commercial real estate sector and has emerged as one of the largest neo-realty investment platform. We believe the recent SEBI consultation paper and proposal on regularizing such investments via MSM REITs will further help in democratizing real estate investment thus opening doors to more investors,” said Aryaman Vir, CEO of WiseX.
Also Read: Strata acquires Café Coffee Day headquarters in Bengaluru
In the past WiseX has offered numerous opportunities for investment under the fractional ownership model across Bengaluru, Pune and Mumbai which were fully subscribed in record time, the company said in a statement.
Also Read: Ram Mandir: Is it the right time to invest in real estate in Ayodhya?
According to Melbourne-based commercial property firm Fitzroys, a cohort of commercial investors are “waiting in the wings”, looking for signs that the market has hit the bottom of the current cycle.
Paul Burns, a consultant of the firm, noted in the Fitzroys Capital Markets Update and 2024 Outlook that the results of the Reserve Bank’s fiscal policy are being felt across the commercial property sector. While some have held off on purchases for lack of access to funding, Mr Burns noted that there’s still a pool of buyers ready to spend.
“Turnover of investment property has been very modest recently. This is not a function of willing vendors, but very much because buyers are holding off until they can see the bottom of the market,” he said.
He described those buyers as “astute, counter-cyclical investors”, and noted that some are already coming out of hibernation to take advantage of current opportunities.
“Cashed up, lowly geared investors are looking forward to the opportunities that are emerging and will emerge. These groups generally include high-net-worth privates and ‘pooled investors’ who can tap into their network of investors to raise funds for discounted opportunities,” he further explained.
Choosing the right time to strike is proving to be a delicate art for this cohort. While some might see that there’s still further to fall, Mr Burns noted that sentiment can change quickly.
“As vendors observe a change in the Reserve Bank’s attitude, prices that vendors are willing to sell for today will not be accepted tomorrow,” he said.
He opined that when funding restrictions begin to ease and commercial property is again looked upon favourably by funders, investors will be more willing to take on counter-cyclical risks. Increased competition will then make its impact.
“Picking the precise date when ‘the bell rings’ is very difficult,” Mr Burns acknowledged.
Finding the right property that suits a counter-cyclical purchase is also a challenge for those who have the funds to invest.
“Investors generally remain focused on property with secure, long-term leases to bankable tenants. Any exposure to vacancy, current or pending, is marked down harshly. Investors place a high value on their equity, when financiers require a greater equity component, the total return expectations increase significantly,” Mr Burns said.
In terms of what they’re buying, alternative asset classes are increasingly in investors’ view.
While industrial, retail and office markets are expected to continue on the trajectories they charted over 2023, Mr Burns explained the growing appeal behind certain niche opportunities.
“Federal and state tax concessions have been attracting more local and offshore capital to Australia’s fledgling build-to-rent sector, which is supported by a fast-growing population and supply shortage throughout the broader residential market,” Mr Burns said.
“The healthcare and life sciences sectors are similarly supported by strong demographic tailwinds, including an ageing and growing population, and are also attracting large swathes of capital from domestic and offshore players, from existing and new entrants to the sectors,” he added.
Carey Baptist College on Great South Rd, Penrose. Photo / One Roof
Two Baptist entities have sold a 1.37ha Penrose commercial property, valued by Auckland Council at $21.5 million, to one of New Zealand’s biggest Pentecostal churches.
Carey Baptist College and Brent McGregor,
The 21.8-km-long Mumbai Trans Harbour Link was inaugurated by Prime Minister Narendra Modi January 12. The sea link aims to cut the distance between Mumbai and the satellite city of Navi Mumbai from a few hours to 15-20 minutes. It is also expected to cut travel time to major areas like Pune, and further to Goa. It may also boost economic development in the region, which houses a mega port and an upcoming Navi Mumbai international airport.
The question that remains to be answered is whether this will transform the fortunes of Navi Mumbai’s real estate market and lead to increase in property prices as is the case with most new infrastructure projects. It should be noted here that Line 1 of the Navi Mumbai Metro, between Belapur and Pendhar, that started operations in November last year, has helped improve real estate prices in markets such as Kharghar, Belapur and Taloja along the 11 km route.
Also Read: Bridge over sea waters: Overcoming five challenges to construct the MTHL
While some real estate experts are of the view that new infrastructure projects in Navi Mumbai are expected to lead to prices increasing by 10-15% in the next 2-3 years, others are of the view that with more land becoming available along the MTHL corridor, prices will be kept under check. Improved connectivity may also lead to increase in demand for luxury projects in Alibaug.
Areas that are likely to be impacted
MTHL begins in Sewri, South Mumbai and crosses the Thane Creek north of Elephanta Island and terminates at Chirle village, near Nhava Sheva in Navi Mumbai. The MTHL seeks to cut short travel time from a 2-hour journey from south Mumbai to Ulwe to a mere 20 minutes. Other areas that are expected to benefit from the direct linkage are Panvel, Ulwe and Dronagiri.
According to international real estate consultancy Colliers, the infrastructure development will escalate the accessibility across MMR, creating affordable opportunities in several emerging residential hubs. This is expected to lead to the emergence of new residential hubs around the peripheral nodes of Navi Mumbai such as Kharghar, Ulwe and Panvel.
Panvel: It should be noted that the under-construction Navi Mumbai International Airport is 20 minutes away from Panvel and the MTHL project is just about 15 to 20 minutes away. This is primarily an affordable housing market. A two to three-bedroom apartment in Panvel can cost anything between ₹8,000 per sq ft to ₹15,000 per sq ft, say local brokers.
Ulwe is in Navi Mumbai. A 2 BHK here may cost as much as a crore. Prices were in the range of ₹25 to ₹30 lakh almost eight years back, they say.
Dronagiri currently commands prices in the range of ₹5,500 to 6,000 per sq. ft.
Also Read: MTHL: Mumbai’s bridge across forever
There is also talk of a ‘Third Mumbai’ expected to come up at the Ulwe end of sea link. This will be developed by the Mumbai Metropolitan Regional Development Authority (MMRDA). Part of its mandate is to create a second business hub like the Bandra-Kurla Complex on a 150-hectare plot at Kharghar in Navi Mumbai. Towns in Raigad district such as Ulwe, Pen, Panvel, Uran, Karjat and Alibaug are all expected to be part of the proposed Third Mumbai.
According to data provided by Anarock, Ulwe and Panvel are and will be the key beneficiaries of the MTHL project in Navi Mumbai. Not just this, the two areas are seeing and will continue to see the dual positive effect of both the MTHL and the international airport project simultaneously. Other areas that have benefitted include Seawood and Kharghar.
As per ANAROCK Research, the average. property prices in Navi Mumbai stood more than ₹8,300 per sq. ft. as on Q3 2023. Back in Q3 2015, the average. property prices were ₹6,650 per sq. ft., thereby increasing by over 25% in the period. With various infra projects in the pipeline which will boost connectivity with mainland Mumbai and other areas in MMR, the city is poised to see average prices go up anywhere between 10-15% over the next 2-3 years.
Will real estate prices appreciate?
Gulam Zia, Senior Executive Director at Knight Frank India, has a different take.
“Most of the real estate in these areas has already developed and evolved. The juice in terms of prices has already been extracted. If prices in Ulwe started at ₹2000 per sq ft almost a decade back, they touched ₹5000 per sq ft much before the connector became operational,” he explained.
Going forward too, “ we expect a regular price increase of 7 to 10 percent across areas that come under this corridor ,” he said.
May keep real estate prices under check
A few months back, Prime Minister Narendra Modi had inaugurated the 17-km priority section of the Regional Rapid Transit System (RRTS) train or RAPIDX, the country’s first mass rapid system dedicated to regional connectivity. This was between Sahibabad and Duhai Depot stations. The entire connector (82.15 km) between Delhi and Meerut is expected to reduce travel time between the two cities to a little less than an hour.
There are a total of eight RRTS corridors that have been planned for the entire NCR of which three corridors have been prioritised to be implemented in Phase-I including Delhi – Ghaziabad – Meerut Corridor; Delhi – Gurugram – SNB – Alwar Corridor; and Delhi – Panipat Corridor. The other corridors which are also part of the long-term plan include the Delhi – Faridabad – Ballabgarh – Palwal Corridor; Ghaziabad – Khurja Corridor; Delhi – Bahadurgarh – Rohtak Corridor; Ghaziabad-Hapur Corridor; and Delhi-Shahadra-Baraut Corridor.
Once operational, these corridors are expected to bring these regions closer to Delhi and also open up huge real estate opportunities. “The land mass available to NCR is expected to multiply. Access to increased land parcels is expected to lead to rationalization in real estate prices,” explained Zia.
Similarly, in case of MTHL, thousands of acres of land that will now be opened up following development of new infrastructure, is expected to keep real estate prices under check and provide for opportunities in affordable housing, he said, adding the immediate impact will be rationalization rather than price appreciation.
A high-profile location in Navi Mumbai known as Palm Beach Road even after 50 years does not compare with real estate prices in Versova or Lokhandwala, he adds.
MTHL may lead to increased interest in luxury projects in Alibaug
It should be noted that the one-way toll for MTHL is expected to be ₹250, and not all can afford this. This means that a monthly pass may cost close to ₹12000 and more than a lakh for the entire year.
“This means that it may attract the upper crust of society who may use the connector to travel to their second homes in Alibaug,” said Zia.
The sea link is expected to cut down on travel time between South and Central Mumbai to Alibaug to just about an hour. “It is because of this reason that buyers are lapping up even apartments in Alibaug,” he said, adding the concept of living in Alibaug and working in Mumbai may soon become a reality.
Agrees Sachin Chopda, Managing Director of Pushpam Group. “There has been a surge in demand due to the MTHL and other ongoing infra projects in the MMR. The second-home markets near Mumbai such as Alibaug and Karjat may become first-home destinations in the next 7 to 10 years due to the impact that these infra projects will create.”
Commercial real estate potential
The enhanced connectivity provided by MTHL is expected to revitalize real estate activity in the old CBD area of South Mumbai, leading to opportunities for retrofitting for investors and developers. It is also expected to be pivotal in connecting the data centre hotspots within Navi Mumbai to the rest of the Mumbai Metropolitan Region, said Vimal Nadar, Senior Director, Research, Colliers India.
“All in all, the real estate landscape in and around the project stands to benefit immensely,” he added.