Embassy Office Parks REIT Public Issue – Should you Invest in India’s first REIT?

Real estate company Embassy Group is soon expected to launch India’s first real estate investment trust (REIT) in March 2019 to raise around Rs 4,750 crore.

Embassy Office Parks is a joint venture between the Bengaluru-based property developer – Embassy and Newyork based private equity firm Blackstone.

Securities and Exchange Board of India (SEBI) had notified REIT’s regulations way back in 2014 but they never really took off in India.

So, what are these REITs? How does REIT works? What are the Pros & cons of Real Estate Investment Trusts? Should you invest in Embassy Office Parks REIT Public Issue (Mar 2019)? Let’s discuss..

What is a REIT?

Real Estate Investment Trust, is a type of real estate company which operates like a mutual fund. Mutual funds pool money from different investors and use it to purchase financial securities like stocks,government bonds etc.,

Whereas, REITs raise money from different investors to invest in income producing real estate properties. REITs can be a great opportunity for small / retail investors to participate in real estate market without directly investing in large scale properties.

How does a REIT work?

How does REIT work real estate investment trust illustration example
What is REIT? How does REIT work? | Illustration
  • REIT collects the money from the investors. These monies are invested mostly in rent generating properties.
  • Properties generate rental income every month (periodically).
  • REIT will distribute the rental income monies among the investors.
  • The capital values of the properties may also raise over a period of time.
  • The Net Asset Value of the REIT units may raise depending on the capital appreciation.
  • The investors can also sell the units for gain/loss in secondary market (stock exchanges).

SEBI’s Guidelines on REITs:

  • Minimum size of REIT should be Rs 500 crore
  • The Initial Public Offer size should be of minimum Rs 250 crore
  • The minimum subscription amount to an IPO is Rs 2 Lakh for a retail investor
  • The market lot is fixed (1 unit) at Rs 1 Lakh. This limit is for trading in secondary market.
  • The minimum public holding should be 25% in a REIT.
  • Initially REITs are allowed to invest only in commercial properties and 80% of the amount should be invested in rent generating properties.
  • The remaining 20% of the REIT amount can be invested in under construction projects,cash,real estate companies’ stocks etc.,
  • Atleast 90% of the distributable cash flows must be distributed with the unitholders.
  • NAV (Net Asset Value) must be declared within 15 days of valuation.

Latest Update (23-April-2019) – SEBI reduces minimum subscription requirement for REITs :
Markets regulator SEBI has reduced the minimum subscription requirement as well as defined trading lots for Real Estate Investment Trusts (REITs). While making an initial public offer and follow-on offer, the minimum subscription shall not be less than Rs 50,000 for REITs. Allotment to any investor shall be made in the multiples of a lot.
Currently, in the case of an REIT issue, the minimum subscription from any investor in an initial offer and follow-on public offer is not less than Rs 2 lakh.

Embassy Office Parks REIT Public Issue – Details

Bengaluru based Embassy Office Parks Pvt ltd was incorporated in 2012. It is into the business of real-estate including buying, selling, renting and operating leased or self-owned properties.

Embassy Office Parks has put 33 million square feet of office and hospitality assets under its proposed REIT comprising of seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.

Out of the 33 million sq ft, about 24 million sq ft area is operational at 95 percent occupancy and yielding a rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft area in the pipeline.

According to the Issue prospectus, Embassy REIT will use the funds raised for partial or full repayment or pre-payment of bank/financial institution debt of certain special purpose vehicles as well as for payment of consideration for acquisition of Embassy One assets.

Below are the few important details about upcoming Embassy Office Parks REIT Public Issue (March 2019) ;

  • Embassy REIT Issue Opening Date : 18th March, 2019
  • REIT Issue Closing date : 20th March, 2019
  • Public Issue size : Around Rs 4,750 cr to Rs 5,000 cr
  • Credit Rating : AAA by ICRA. The outlook on the assigned rating is ‘Stable’.
  • Issue Price : Rs 299 to Rs 300 per unit/share.
  • Minimum order quantity : 800 shares
  • Listing at : BSE & NSE
  • Issue Allocation Ratio : 75% to Institutional Investors and 25% to Non-Institutional Investors.

Investments in REITs & Tax Implications

  • The dividends distributed by REITs are tax free in the investors’ hands. REITs will pay the dividend distribution tax. W.E.F 1st April 2020, the dividends are taxable in the investors’ hands. The dividend income is taxable as per the slab rates applicable for FY 2020-21.
  • REITs will be listed on the stock exchanges. The tax on Long Term Capital Gains incurred by the investors when they sell the units (REIT units) after 3 years of holding is 10% if the LTCG are in excess of Rs 1 lakh.
  • The Short Term Capital Gains on the sale of units held for less than 3 year will be taxed at 15%.
REIT units tax implications for unit holders capital gains on REIT investments dividend income rental income REIT taxation rules in India
Tax Implications of investments in REITs

Should you Invest in Embassy Office Parks REIT Issue?

Let’s now understand the Pros & cons of investing in REITs..

Benefits of investing in REITs;

  • Transparency– REITs will be regulated by Securities Exchange Board of India (SEBI). Like Mutual Funds, REITs will be managed by professional managers.
  • Hassel free – A retail investor can hold a small piece of a rental income producing real estate asset without going through the hassels of property buying and registration.
  • Diversification – REITs provide a new opportunity to invest in different kind of real estate projects which spread across different geographies or locations. Also, investors can consider this as a new asset class in their investment planning.
  • Liquidity – REITs will be listed on stock exchanges. The shares/units of listed REITs can be bought and sold.
  • Industry growth – REITs can extend credit and financing options to developers and real estate companies. They provide an exit option to developers. REITs can buy properties from the developers and operate them. It will increase the depth of Indian real estate market. REITS will increase the flow of funds to cash-starved real estate industry.
  • 90% of distributable cash flows have to be distributed with the unitholders. This may ensure regular income to the investors in the form of Dividends.
  • The value of the properties held by REIT can go up leading to capital appreciation. This will increase the NAV of the REIT units.
  • Implementation of policies like demonetisation, RERA, the Goods and Services Tax (GST), the Benami Transactions (Prohibition) Amendment Act, 2016 and the Pradhan Mantri Awas Yojana (PMAY), among others, have brought fresh hope to otherwise no-so-well regulated industry.

REITs & Challenges :

  • SEBI has set the minimum subscription amount for a retail investor at Rs 2 Lakh. This is an entry barrier to small investors. It has clearly stated that the minimum subscription amount will soon be reduced. SEBI initially wants to test the waters. The cautious approach adopted by SEBI can be acceptable.
  • As any other industry, real estate sector can get into a slump and you may not get regular income on the expected lines.
  • The main selling point in case of REIT is the steady flow of rental income from the properties. The current average rental yield for commercial properties in India is around 5 to 8% (assumption). The investors will compare these returns with other fixed income products. If the rental yield does not increase then the attractiveness of REITs as an investment option may fade away.
  • Another key challenge would be, ‘the property valuation process.’ There are no proper standards,procedures or benchmarks in India for property valuations.

Should REIT be part of your long term investment portfolio? – Answer is NO (as of now). It is too early to state that REITs can be successful in India as in the developed countries. The returns (income) can be on par with fixed income securities like bank FDs. Do not expect fantastic returns from REITs. The capital appreciation can be in single digits.

If you are ready to take high risk, not worried about safety of capital, expecting some periodic income and want to just diversify into a different asset class then you may test the waters with Embassy REIT Public Issue.

But, REITs can be a boon to Developers who are facing credit crunch and bankers/equity firms to cash-out their investments. Let’s all hope that REITs to be successful in India and provide a new investment avenue for retail investors!

(Disclosure : I am planning to subscribe to this IPO)

Continue reading :

(The Public Issue details are based on the limited available information. If needed, these will be udpated/edited.)

(Image courtesy of Sira Anamwong at FreeDigitalPhotos.net) (Post first published on : 13-March-2019)

  • Ipowala says:

    Great article and your view..! I think you mention it very well about REIT.


  • Srikanth says:

    Thank you Sreekanth for sharing your wisdom

  • Bharat says:

    Apart from the Rental yield which may be like 5-6% every year , it looks like FDs are better avenues than this but such thoughts may be good if one’s horizon is for short term.
    For a long term investor (10+ years) , these investments (Provided the REIT concept works in India) can generate great returns over long term.
    In FD , you get the returns on maturity at specified rate and similar returns may also be there in REIT in form of dividends but apart from that , the appreciation in Value of real estate will also help in generating better returns for REIT. Also the rental agreements gets renewed every 11th Month and chances of increasing rentals at 5-10% every year or two. For someone buying REIT and getting 5% yield on invested amount in first year , may get better yield after 3-4 Years on invested capital due to increase in rentals and thus higher dividends.

    I think , for retail investors , it is better to wait till minimum investment amount reduces and more clarity comes.

    • Sreekanth Reddy says:

      Dear Bharat,
      Thank you for sharing your views!

      The biggest challenge I foresee or expectation I have is – the accounting structure of REITs should be transparent and the valuation procedure should be correct.

  • Great article and quite a balanced view! I think the most important thing you highlighted is that investors need to understand REIT is not a silver bullet but a long term investment that will offer regular return.

    REITs are here to stay and I guess no harm in giving Embassy one a miss. Soon, the minimum investment amount will also come down and we will have a better view of what to expect.

    • Sreekanth Reddy says:

      Dear Krishna,
      Thank you for sharing your views. I have also visited your blog and read your ‘analysis & review’ on Embassy REIT IPO, it is very informative. Cheers!

  • Kris says:

    Real estate in India is expensive since most of the ‘black money’ is invested there. Net Rental income after all expenses (interest, depreciation, maintenance) may be NEGATIVE, so why invest in REITs?

    • Sreekanth Reddy says:

      Dear Kris,
      Yes, most of the property deals are a combination of ‘White + Black’ money transactions.

      But, things are slightly better when compared to few years back..

      Regarding the returns, one can expect single digit returns and not abnormal ones.

      • Kris says:

        Thanks Sreekanth.
        If one of expects single-digit return, why take risk, just have an FD instead for a guaranteed return?

        • Sreekanth Reddy says:

          Dear Kris,
          Yes, one can do so!
          We need to track the rental yields and also the capital appreciation (if any)..Let’s wait for more REITs to come into the market..

  • Rajeev says:

    Hi, Thanks for the information and this is helpful. I was curious to know how will the capital appreciation calculated, you know how the real estate market work and how the values appear on paper and the actual values of the property. Also, these companies can show a lot of expenses on maintenance reducing the actual returns to the investors, do you see this happening.

    • Sreekanth Reddy says:

      Dear Rajeev,
      Property valuation can be the most challenging aspect, I have mentioned the same in the above article.

      As per the Issue details, they have mentioned an indicative yield of around 9%. Only time will let us know..

  • sridharan says:

    Dear sree,
    Thanks a lot for nice article on REIT. I have one doubts regarding
    Long Term capital Gain Holding period more than 3 years or 1 years ? because listing in Stock market..

    Please advise us

    Once again, Thanks a lot..

    • Sreekanth Reddy says:

      Dear Sridharan,
      Even I have slight confusion over this!
      Based on the current available information, I have provided these details.
      Let’s wait for some more days to get a clarity on tax implications.. if required, will surely update the above details..

  • Karthik says:


    I have already taken partial pf through online mode and now I applied through offline mode as composite claim form ( aadhar based) and I already used construction of house as the purpose of withdrawal. Now I applied my claim Jan 31st through speed post to concerned pf office and still now I didn’t get any confirmation sms or amount deposited to my bank.

    I have submitted my bank cancelled cheque along with the filled CCF form.

    Please let me know the way if solution to get my partial pf withdrawal


  • Shyamji says:

    Thanks Sirji

  • SaravanaKumar says:

    Thank you Sree. Very Informative article on REIT related investment Avenue. Till the new changes as everyone expected, we can use the Mutual funds opportunities available now.

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