“REITs are already gaining popularity as an asset class among HNIs and institutions and while the reclassification does not materially change their participation, it does reinforce the position of the instrument as a mainstream equity-linked product with liquidity in such instruments as high as listed stocks,” said Sahil Kapoor, head of Products, 360 ONE Wealth.
REITs, which own or operate income-generating property, allow investors to earn from units without directly purchasing real estate. They are typically low-beta instruments offering more stability than volatile listed real estate stocks.
Reclassification makes REITs mainstream equity instruments, attracting mutual fund money and boosting chances of index inclusions. Embassy Office Park REIT rose 2% on Thursday, while Mindspace Business Park REIT and Nexus Select Trust gained 1.3% and 1.1%, respectively. Brookfield India Real Estate Trust and Knowledge Realty Trust advanced about 0.5% each.
Last week, Nexus Select Trust jumped 5.6%, Mindspace gained 3.7%, and Brookfield rose 2.9%. Embassy and Knowledge Realty added 1.3% and 4.3% each. Meanwhile, the Nifty Realty index fell 1.7% on Thursday, extending a four-day losing streak, after dropping 7.5% in July and 4.6% in August. It had gained more than 4% last week.
“Fund managers who are cautious about the risks in real estate equities may prefer REITs as a way to maintain exposure to the sector with relatively lower volatility and risk involved,” Kapoor said.Reits differ from listed real estate developers in that they own and operate income-generating assets such as offices and malls, distributing most of the rental income to unit holders. When investors bet on shares of property developers, they are focusing on the earnings, making returns more volatile.
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