Trust the structure: REITs, InvITs and the real return imperative

There is a global trend in play: cost of capital is structurally higher and likely to stay there; the four-decade era of falling rates (1981–2008) and ZIRP (2009–2021) has been replaced by a post-2022 regime of sticky inflation and elevated interest rates. This macro shift has highlighted the importance of durable cash flows, inflation resilience, and real asset exposure within portfolios. With this, Real Assets are gaining ground as mainstream investment asset class and one of the most reliable ways to compound wealth in a high-rate environment world. 

India's REIT and InvIT market has already scaled to a market capitalisation of over INR 5 tn, with 32 trusts launched in just nine years. However, their total market cap represents only 1.5% of India’s GDP, significantly lower than 5%-12% of GDP in several mature markets like US, Australia, Singapore and Japan. This highlights the relative infancy of India’s REIT & InvIT market, and also underscores the scale of growth runway available. The financialization of real assets therefore remains one of the most significant long-term opportunities in India’s capital markets over the next decade. 

Distribution yield is an incomplete metric — the right frame is Equity IRR determined using entry price, distribution trajectory, NAV evolution and (most under-analysed) terminal value.  Focus should be on inherent equity IRR of each asset class, which generally trends at a 200-700 bps premium to 10-yr G-Sec from a long-term base case perspective. 

India's REIT and InvIT AUM is currently at ~INR 10 Tn. The underlying REIT and InvIT sectors of roads, office, retail, transmission, renewables, telecom assets and logistics infrastructure sectors have a monetizable potential to achieve AUM of ~INR 20 Tn by 2030 - the growth potential for REITs and InvITs remains exponential. On the investors’ side, institutional investors like pension funds, insurance and mutual funds have been structurally under-allocated to this product. We estimate investable funds worth ~INR 11.6 Tn can incrementally be allocated to REITs and InvITs over the next five years. 

The combination of infrastructure expansion, rising domestic savings, institutional participation and regulatory foresight is strengthening the foundations. Many of the structural conditions that supported the growth of global REITs markets are increasingly taking shape in India. There are 5 key catalysts at play to chart out the next phase of growth for REITs and InvITs:

• EPFO access to non-PSU trusts: Pension funds are among the largest investors in REITs and InvITs globally. In India, EPFO's participation is currently limited to PSU-sponsored trusts. Even a modest broadening of the eligible investment universe to non-PSU REITs / InvITs could meaningfully expand this base. Based on current EPFO assets, a 2% allocation could potentially translate into inflows of approximately INR 600 bn.
• Insurance allocation expansion: The IRDAI has capped REIT/InvIT exposure to 6% of AUM, however, insurers typically allocate >8% to business trusts globally. Even a 1% incremental exposure could channel funds in excess of INR 600 bn towards REITs and InvITs.
• Passive ETF products: Single tradeable vehicles offering dedicated exposure to a diverse set of REITs and InvITs could help expand retail participation in the space. An estimated 2% allocation towards this can channel capital over INR 240 bn towards REITs and InvITs.
• Global index inclusion: As the product matures, it is imperative for REITs and InvITs to be included in major global indices. A 2% weightage in the global indices could generate investments in excess of INR 1 tn into the asset class.
• New sector listings: Currently, a large share of REITs and InvITs are concentrated in office and select infrastructure assets like roads. Globally, asset classes like data centres, airports, and urban infrastructure are also held under such structures. India is also set to see such diversification as sectors mature.