HNIs shift attention to more returns as large funds and REITs enter the landscape
The ultra-rich are now seeking more benefits in the expanding Indian real estate market. The visible changes have come after the sector is now better organized with the coming of real estate investment trust (REIT) and large funds.
High net worth individuals (HNIs) are purchasing office spaces in large commercial properties from the developers and are also investing in fund houses, which further buy rental assets. These HNIs are eyeing REITs which will make their investments secure and give better returns.
Prestige Estates Ltd, which is a developer based in Bengaluru, is coming up with a large office space in the city, and plans to sell around 50 per cent of the stock to HNI investors.
The developer had stopped selling properties to investors in the past few years, but now plans to come back in the game because of a high demand from HNIs.
“There are a lot of enquiries for good quality office space. We plan to resume selling to investors with this new project, which is more than a million sq ft in size,” said Prestige chief executive officer (CEO) Venkat K. Narayana.
While the under-performance of residential real estate is one of the reasons that made investors to move to offices, but has multiple reasons to pull investments on its own.
With the first REIT a few months away, home buying is currently experiencing its worst spell in years. However, the institutional investments are pouring in offices are booming and the demand is outpacing supply.
With the office space sector becoming more organized, HNIs and NRIs are more interested in participating through REITs rather than taking the headache of directly buying a property, said Ambar Maheshwari, CEO (private equity), Indiabulls Asset Management Co. Ltd.
“They can also invest through funds… These are effective ways of making individual investors participate in the office growth story,” he added.
With the change happening in the office buying space, Indiabulls Dial Advantage Assets Fund, which is an alternative investment fund, is raising around Rs 1,500 crore, which will have Rs 500 crore from co-investors, mainly HNIs and family offices.
Embassy Office parks backed by Blackstone Group LP, in September, filed an offer document to raise over RS 5,000 crore through REIT with Securities and Exchange Board of India. It is likely to be listed the nest year. A total of 33 million sq ft of office space and hospitality assets fall under the REIT portfolio.
Although the returns on office spaces have reduced, investors still prefer commercial real estatebecause of the good capital returns and rental yield, said Shivam Sinha, founder and CEO, India Assetz, a real estate wealth management advisory.
“With REITs, HNIs would have access to relatively risk-free investments, similar to investing in mutual funds. Investments in office space are larger, so investors often form a pool, jointly buy a single unit, and split the rental yield. Typically, they don’t prefer stand-alone buildings unless they are buying the whole building, and prefer buying space in a large office park,” Sinha further said.
The investment range for an HNI investor can be from Rs 5 crore to Rs 50 crore. “Apart from the traditional office and retail spaces where yields have compressed to around 7%, HNIs are open to warehousing and student housing for the better yields that these segments are capable of offering,” said Tejas Patil, head, real estate investment, Sanctum Wealth Management.
Salarpuria Sattva Group, which has sold to HNIs before, is currently looking forward to expand and own office spaces and later decide if REIT would be a suitable option, said the MD, Bijay Agarwal. The demand for rental assets is high because of the anticipated REIT, he added.