Mumbai: Real Estate Investment Trusts (REITs) listed on domestic stock exchanges have largely been forgettable bets for many investors in 2023 so far as a delay in the pick-up in commercial real estate, a slowdown in the IT sector, and higher interest rates have capped returns.
Prices of the listed REITs have mostly fallen so far this year, but investment advisors see better prospects for this asset class in 2024 if the government eases occupancy rules in special economic zones (SEZs).
REITs are vehicles that own and operate income-producing properties mainly office spaces and commercial real estate. Investors, who put money in REIT units, get dividends in addition to the capital appreciation in listed units. Unitholders hold REITs for a mix of dividends and capital appreciation.
Prices of Mindspace Business Parks REIT have declined 5.4% so far in 2023, Brookfield India Real Estate Trust has dropped 16.3%, and Embassy Office Parks REIT has fallen 5.4%. Nexus Select Trust REIT, listed in May, has gained 28%.
"REIT share prices were hurt by macro issues such as hybrid work model-driven office space demand, slower IT & ITES hiring, expected global recession and high interest rates," said Shantanu Bhargava, head of discretionary investment services at Waterfield Advisors.
The decline in prices of most listed REITs came amid a sharp rally in the stock market and real estate shares. In 2023 so far, the Nifty Realty index gained 68.62% and Nifty 50 was up by 14.86%. Most listed real estate companies operate in the residential business, which has seen a rebound in sales and volumes.
"REITs represent investment in commercial properties, which are seeing steady growth along with the growth of the economy, but not necessarily the strong pickup that is being witnessed by residential real estate," said Unmesh Kulkarni, senior advisor at Julius Baer India.
