HDFC chairman Deepak Pareskh sees more REIT issues in the offing

Following the success of the country's first REIT issue by Embassy Office Parks last week, HDFC chairman Deepak Parekh Monday said two to three companies have already approached the mortgage lender to be an investor for such issues over the next 12 months. The Embassy Office Parks REIT (real estate investment trust) issue raised around Rs 4,750 crore last week and on its listing Monday the unit jumped 6.3 percent on debut trade against the issue price of Rs 300.

"REITs are a good instrument class but not well understood here. Assets in REITs with assured yields and after three years there is an increase in rentals. Therefore, there is more value and more capital appreciation" Parekh told reporters on the sidelines of the listing of the Embassy REIT on the NSE.

He said, REITs offer investors who are mostly HNIs, insurance firms and institutional investors, with guaranteed returns of 8-8.5 percent. "I think the timing for this REIT was right with the good interest rate and pricing. Two-three of our clients are in talks with us to invest in them over the next couple of quarters. I think we will see more REITs being launched soon," Parekh added.

Talking about the response from foreign investors, he said, "January-February have not been good for FPI investments as we saw outflows. However, March witnessed massive inflows mainly on the back of expectations that a stable government will be in power after the forthcoming polls. Investors don't want to miss the bus, it seems."

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He said there have been massive inflows to the tune of USD 7-8 billion in March. Because of the confidence among investors that feel that there will be a stable government and not a mixed up one with 10 parties," Parekh added.

He also explained that the renewed optimism on the domestic market arises from the fact that the US Fed has said it would not increase interest rates in the near-term which is a good sign for us. "This is because of arbitrage gains as the interest rate gap between the US and India is huge. Also, the rupee has appreciated due to more inflows. This is a positive sign despite election uncertainty," Parekh said.

The issue of the country's first REIT was subscribed 2.57 times during its bidding process last month, helping the firm raise Rs 4,750 crore. The issue was in a price band of Rs 299-300 per unit. REIT is an investment tool that owns and operates rent-yielding realty assets. It allows individual investors to make investment in this platform and earn income.

Embassy Office Parks, a joint venture of Blackstone and realty firm Embassy group, had last September filed the draft red herring prospectus with markets regulator Sebi to launch REIT, touted as Asia's largest in terms of portfolio size of 33 million sqft.