Real estate has always been one of the most popular investment options in India. This might be because of the tangible aspect. Although it is commonly referred to as a conventional investment, real estate remains a solid portfolio diversifier. Nonetheless, common wisdom holds that when interest rates increase, rate-sensitive sectors lose. And one such rate-sensitive sector is real estate. In August 2022, the Reserve Bank of India (RBI) increased the key policy rate (repo rate) by 50 basis points to 5.4 per cent. This was the third subsequent rate rise in a row.
However, recently, the Indian real estate market has grown remarkably, becoming a top alternative for investors. According to research, the real estate sector is predicted to rise from USD 200 billion in 2021 to a market value of USD 1 trillion by 2030, accounting for 13 per cent of India's GDP. Real estate investors have long felt that commercial real estate is a lucrative investment option because it provides a high return on investment (ROI) and extra income prospects.
With economic activity picking up and the bulk of the workforce returning to work, the demand for commercial real estate is skyrocketing. According to data, the commercial real estate industry in India is predicted to increase at a CAGR of almost 13 per cent between 2022 and 2027. Having said that, would this be an ideal time to invest in Real Estate Investment Trusts (REITs)? This article is an attempt to provide an answer. However, before we get started, let us first grasp the foundations of REITs and how they function.
Understanding REITs
This story is from the September 26, 2022 edition of Dalal Street Investment Journal.
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This story is from the September 26, 2022 edition of Dalal Street Investment Journal.
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