In 2023, Real Estate Investment Trusts (REITs) on domestic stock exchanges have been less than stellar investments for many. A sluggish pick-up in commercial real estate, a deceleration in the IT sector, and elevated interest rates have collectively constrained returns, leading to a less than favourable outcome for investors.
"The prices of listed REITs have experienced a downward trend this year. However, investment advisors foresee improved prospects for this asset class in 2024, contingent on potential government actions to ease occupancy rules in Special Economic Zones (SEZs)."
REITs, or Real Estate Investment Trusts, function as entities that own and manage income-generating properties, primarily consisting of office spaces and commercial real estate. Investors participating by investing in REIT units receive dividends alongside potential capital appreciation from the listed units. The appeal of holding REITs lies in the combination of regular dividend income and the opportunity for the value of the units to increase over time. Unitholders engage with REITs with the dual expectation of earning dividends as a steady income stream and witnessing potential growth in the value of their investments through capital appreciation.
In the current year, Mindspace Business Parks REIT has witnessed a decline of 5.4% in its prices, Brookfield India Real Estate Trust has experienced a notable drop of 16.3%, and Embassy Office Parks REIT has seen a decrease of 5.4%. Conversely, Nexus Select Trust REIT, which entered the market in May, has shown resilience by registering a gain of 28%.
The share prices of REITs faced challenges due to macroeconomic factors, including a shift towards hybrid work models impacting office space demand, a sluggish trend in hiring within the IT & ITES sectors, anticipated global economic downturn, and the impact of higher interest rates," explained Shantanu Bhargava, Head of Discretionary Investment Services at Waterfield Advisors.
Despite a robust rally in both the stock market and real estate shares, the majority of listed REITs experienced a decline in prices. In contrast, the Nifty Realty index demonstrated a substantial gain of 68.62%, while the Nifty 50 witnessed a positive trend with a rise of 14.86% in 2023. Notably, many listed real estate companies primarily engage in the residential business, where there has been a noteworthy resurgence in both sales and volumes.
Unmesh Kulkarni, Senior Advisor at Julius Baer India, highlighted that while REITs signify investments in commercial properties, their growth aligns with the overall economic expansion. However, it may not necessarily match the robust upturn observed in the residential real estate sector.
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