Mumbai tops list of cities offering REIT-compliant office space

A new report by leading property services company JLL India has revealed that Mumbai, the financial capital of the country leads the list of REIT compliant office stock accounting for approx 24 percent or 48.72 mn sq. ft, of the total 203 million sq ft available in the country.

Following close on the heels of MumbaI is Bengaluru with about 20 percent of REIT compliant office stock followed by Delhi-NCR (19 percent) and Chennai (14 percent). The ranking is a little different in terms of the number of REIT compliant office assets with Bengaluru grabbing the pole position with approx 25 percent of the total 660 assets, with the Delhi-NCR region coming a close second at 21 percent and Chennai and Mumbai bringing up the rear with 18 percent and 16 percent respectively.

REITs or Real Estate Investment Trusts, which finally got the much-awaited government approval in the last budget, invest funds collected from various investors into select realty projects.

From a developer perspective, REITs offer a cheaper and easier source of funding for their realty and infra development projects vis-à-vis conventional sources like banks.

The report further points out that existing rental yields in the country are much lower in comparison to risk-free options like government bonds. While office rents continue to sustain at approx 15-40 percent lower than the peak levels in 2008, rents are expected to rise with the economy slowly getting back on the growth track and the increased transparency in the realty sector in the aftermath of recent policy initiatives.

However, this is expected to be a gradual increase over the next two-three years, with the REIT market showing clear signs of achieving a market potential of approx US$15 bn in the country.


Indiareit Fund seeks investors' ok to extend scheme

The Indiareit Fund, which is backed by Ajay Piramal has sought the approval from investors in its real estate private equity fund - Indiareit Fund Scheme III - to extend the scheme's tenure by another year. The scheme which was launched sometime in July 2007 is scheduled to mature in July 2015.

If approved, this would be the second extension granted to the fund that was earlier slated to mature in July 2013 before it was granted a further two-year extension at the time.

Making the request in a letter addressed to the fund investors, Piramal Fund Management's managing director Khushru Jijina expressed a view that the stated time periods were essential to achieve the fund's expected values.

He further added that without the extension it would be extremely difficult to monetize the fund and any shorter time bound liquidation was likely to adversely impact its residual values.

It may be recalled that the fund had raised close to INR 600 cr in 2007, when the stock market was at its peak and property prices were headed north. Well-heeled investors had showed a lot of confidence in the fund which required a minimum investment of approx INR 25 lakhs to participate.

The fund returned 99.83 percent (INR 24.95 lakh), of the total capital, marking absolute returns for investors to the tune of about 33 percent, however the IRR from the fund was below par at 5.06 percent.

According to industry experts the low returns also raised concerns among investors on the fate of the balance monies, effectively negating the belief that investments into realty assets classes ensured superior returns vis-a-is other assets classes.