“If you do not like real estate, all you have to do is make hamburgers, build a business around that hamburger, and franchise it.” — Robert T. Kiyosaki
Robert Kiyosaki in his greatest-promoting book ‘Rich Dad, Poor Dad’ tells the inspirational story of McDonald’s founder Ray Kroc. While interacting with a group of MBA students at the University of Texas, Ray Kroc asked them if they knew what organization he ran. The students believed it was a joke. After he asked for the second time, a person from the back yelled that Ray was in the “hamburger business.” Shaking his head, Ray replied he was in the actual estate organization.
Clearly, Ray did not flip the burgers, he owned the technique that designed and sold the burgers. McDonald’s owned the actual estate on which just about every shop was constructed which helped the firm gather rent and royalties by means of land leases to franchise owners. As of 2014 information, its franchisees produce 82% of just about every dollar of profit in McDonald’s corporation. In other words 82% of the burger company’s profit comes from actual estate.
This anecdote presents relevant lessons for today’s instances. The initial lesson is that physical assets are commonly more resilient and productive. The second and more ephemeral lesson is that if you had missed allocation to the Zomato IPO, do not shed heart. You can nevertheless invest in actual estate and infrastructure assets, which homes restaurants, kitchens and industrial spaces.
Infrastructure and actual estate are beginning to wake up from a decade-extended slumber as investment themes. Shares of DLF, which has a superior mix of industrial and residential actual estate, are breaking out of a extended-term consolidation phase. Market professionals say actual estate and infrastructure could propel the next round of Bull Run more than the next 18 months.
Though REIT and InvIT are comparatively new asset classes in India, they are really huge globally. These asset classes look attractive on a post-tax returns basis in an atmosphere exactly where interest prices are coming down across the technique. This serves two purposes. One, it frees up capital and liquidity for the issuing firm. On the other hand, it builds a platform for investors to invest in superior good quality priced assets. These are really structured items with ease of entry and exit in trading.
High Networth Individuals (HNIs) have warmed up to these asset classes right after the profitable listing of Embassy, Mindspace and Brookfield. Retail participation will also choose up. We count on the participation in these instruments to turn out to be broad-based attracting a wide array of investors.
Chance SIZE
Investors are hunting at the twin possibilities of straightforward trading and affordable returns lured by the post listing overall performance of India Grid and Power Grid IPOs. An concern like Power Grid gave investors an chance to invest in the AAA-rated PSUs and offered affordable post-tax returns.
According to our estimates, Rs 3.85 lakh crore (trillion) of assets are most likely to be listed in the next 2-3 years which will assist develop and sustain an exchange traded infrastructure ecosystem. In InvIT alone, there could be potentially Rs 2.5 lakh crore worth of new issuances. According to JLL estimates, India’s present workplace markets across seven key cities have about 284 million sq. feet that could be securitised with an estimated worth of $36 billion (Rs 2, 62,800 crore).
Foreign funds will pounce on this $36b chance. HNIs and retail investors are also most likely to pour a gush of funds into REITs and InvIT. Even actual estate developers are warming up to the thought.
List of upcoming REIT/Invit:
REIT: DLF REIT
Invit: NHAI Invit (Roads), Shrem Invit (Roads), KKR Invit (Renewable). Moreover, in the Union Budget 2021-22, GOI has indicated interest to monetize devoted rail corridor assets, airport assets, oil and gas pipelines of GAIL, IOCL and HPCL, Warehousing Assets of CPSEs such as Central Warehousing Corporation and NAFED and Sports Stadiums
The pipeline of InvIT issuances appears really superior. DLF, RMC, Nitesh Estates are lined up in the close to future. Embassy Office Parks, Mindspace Business Parks and the Brookfield India Real Estate Trust, which lately had a blockbuster listing, are the 3 REITs traded on exchanges. While India has at present 15 registered infrastructure investment trusts. IRB InvIT Fund and the IndiGrid Trust InvIT have rebounded sharply lately right after the initial volatility.
Table on returns
Even in the present scenario, the pre-tax annual dividend yields of the listed REIT and InvIT are greater than fixed deposits, government bonds and other debt mutual funds as is shown in the chart under.
^Closing price tag as of 16-Jul-2021.
*Indicative numbers. Highest tax bracket assumed for post-tax yield calculation
Conclusion
Not only these instruments give superior relative returns, they are also excellent tools for a balanced, diversified portfolio in the present instances of unprecedented euphoria. It is crucial for investors to focus on a balanced portfolio. It is now more than ever crucial for investor portfolios to balance the objectives of development with stability and sustainability. Investors really should boost allocation to exchange traded actual estate and infrastructure items to advantage from the unprecedented boom in the infrastructure sector more than the next handful of years in India.
(By Alok Saigal, Head-Private Wealth, Edelweiss Wealth Management)
Disclaimer: These are the author’s individual views. Please seek the advice of your monetary advisor ahead of producing any investment)