Fundraise by InvITs, REITs surges multi-fold to Rs 17,116 crore in FY24 on promising returns

Investor enthusiasm towards InvITs and REITs is on the rise, with fundraising through these routes reaching Rs 17,116 crore in 2023-24, a 14-fold year-on-year surge fuelled by the prospect of stable returns.

Going ahead, the outlook for infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) in terms of fundraising for the current fiscal FY25 is very optimistic, industry experts said.

"After Sebi's amendments to the SM (small and medium) REITs regulations last month, we are poised for a transformative shift. The Indian fractional ownership market, set to evolve into SM REITs, is projected to grow from USD 500 million to over USD 5 billion in AUM by 2030, indicating a significant expansion and bright prospects for SM REITs," WiseX CEO Aryaman Vir said.

Moreover, the road sector is likely to be a major beneficiary, likely attracting 75 per cent of the new inflows, thanks to a robust pipeline of assets ready for monetisation and a strong pace of infrastructure development, he added.

According to data compiled by Prime Database.Com, REITs and InvITs have raised Rs 17,116 crore in 2023-24 compared to a record low of Rs 1,166 crore in 2022-23. Besides, FY24 saw the first ever offer-for-sale (OFS) by an InvIT, with Data Infrastructure Trust raising Rs 2,071 crore.

The impressive growth in funds raised through the route could be attributed to several factors like regulatory support, a focused approach on infrastructure development and the growing popularity of fractional ownership in real estate, Vir said.

In 2021-20, Rs 13,841 crore was collected through the route and Rs 33,515 crore in 2019-20, according to the data. REITs and InvITs are new concepts in the Indian market but have been a popular choice globally for their lucrative returns and capital appreciation.

A REIT is made up of a portfolio of commercial real estate assets, the majority of which are already leased out, and InvITs consist of a portfolio of infrastructure assets like highways.

Overall, InvITs and REITs have seen tremendous growth. While the rules were put in place in 2014, the first investment trust was registered with Sebi in 2016-17. At present, there are 24 registered InvITs and 5 REITs with an assets base of over Rs 5.5 lakh crore.

"Since the introduction of investment trusts in the Indian markets, REITs and InvITs have invested tremendous time and effort in educating the investor community of this new investment avenue and the benefits investment trusts provide to both investors via assured returns and visibility of cash flows and infrastructure developers by freeing up their capital to undertake further development," IndiGrid CEO Harsh Shah said.

Additionally, Sebi has introduced various regulations, such as reduction in lot size, enabling bank lending, or increasing leverage to 70 per cent to simplify investment into InvITs, he added.

REITs and InvITs present the potential for generating appealing returns as they are mandated to distribute a specific percentage of their income to investors, making them an enticing investment option.

All these factors have helped REITs and InvITs gain popularity as a preferred investment vehicle, which has led to a higher quantum of investments witnessed by this sector.

Highlighting the tremendous growth seen in InvITs, NDR InvIT Managers CEO Krishnan S Iyer said that investors are seeking stable and long-term yields, and InvITs, with their underlying infrastructure assets and regular distributions, perfectly address that need.

Also, the success of the initial public offerings (IPOs) has emboldened developers to consider the InvIT route for monetisation, creating a healthy pipeline, he added.

The markets regulator has been consistently working on amendments to REITs and InvITs to upscale the governance standards while increasing transparency through provisions like Unitholder Nominated Directors, the cap on leverage, minimum rating requirements, higher disclosure measures than companies, various options to raise equity, such as rights, institutional placement, in addition to IPO.

Additionally, the Securities and Exchange Board of India (Sebi) has improved the ease of investment by reducing lot size to one or updating the pricing requirements for institutional placements by listed trusts.