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REITs in India - Developing Commercial Assets and Office Space

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by Chandhini Raghupathy
26 March 2015

The Indian commercial and office real estate market faces two major challenges - a liquidity crunch and poor asset management problem. Exorbitant interest rates and harsh principle payback terms, have forced realtors into bankruptcy. Tenants leasing out commercial and office spaces, consider factors such as parking space availability, clear land titles and reliable supply of water and electricity. Realtors with no prior experience in managing assets, fail to realize the importance of these amenities. Even though demand for commercial and office spaces remains high, vacancy rates of commercial and office space assets are as high as 20%. However, rents for well managed assets have been increasing steadily, this due to a supply-demand mismatch. �REITs address both these problems. If Real Estate Investment Trusts (REITs) is implemented with right incentives, it will help add significant high-quality commercial and office space to the market. By mid-2016, tenants with long-term business investments in India, can lease premium commercial and office spaces at reasonable prices. Introduction REITs were first introduced in the USA in 1960, to enable small-medium size investors to invest indirectly through REITs in real estate commercial asset class. Currently REIT framework exists globally in over 20 countries and has proven to be a long-term low-risk investment. Real Estate Investment Trusts (REITs) are tax-transparent investment stocks (benefits of double-taxation exemption) for publicly trading real estate assets. REITs increases liquidity in the real estate market and also provide more accountability and transparency in the real estate market. REITs create an opportunity for retail investors to invest in commercial assets as part of their portfolio. A major portion of the earnings and capital gains from the rental yielding assets are distributed as dividends to investors. The REIT assets are managed by experienced managers and this minimizes risk for investors.   Author: Chandhini Raghupathy

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