With most of the investment products largely subdued in the wake of the pandemic, Real Estate Investment Trusts (REITs) are among the most viable investment alternatives compared to other financial products, according to a report by Savills and FICCI.
India's first REIT was listed last year and according to the report titled 'India REIT: A potential investment window', so far, the country's sole REIT has outperformed BSE Sensex, the Realty Index and a majority of the small, mid and large cap mutual funds.
"My conviction on REITs is guided by more reasons than one. Foremost is the fact that despite global and domestic economic upheavals of 2018-19, India posted its highest-ever office space absorption for two consecutive years, clearly underlining a very strong occupier demand for its office buildings. The yields from the singular REIT on the market have remained unambiguously attractive - maintaining a discernible lead over 10-year G-sec, even through the lockdown phase," said Anurag Mathur, CEO, Savills India.
As per the report, while REITs, like any other investment product, come with their own challenges, they are a relatively secure option as 80% of the underlying assets in REITs must be operational and income generating.
Moreover, the diminishing returns in other investment avenues when compared to the superior pre-tax yields of REITs make them a lucrative option, it said.
It noted that at present, the most safe investment options, including public provident funds, fixed and recurring deposits, post office and savings bank deposits are at near all-time low returns as compared to historical high figures.
Pre-tax yields of REITs have proven to be better than most widely used investment options in the country. The yield gap widens when tax is taken into consideration. The dividend portion of income from REIT being non-taxable, lends a significant advantage to a retail investor.