The Rising tide of institutional investment in India’s REITs and InvITs

‍India’s real estate and infrastructure investment landscape is undergoing a quiet but significant transformation, with Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) emerging as increasingly attractive avenues for institutional investors. While still relatively young as a product category, Lighthouse Canton believes these vehicles are poised to mature and deliver robust returns, aligning closely with broader capital market trends.‍

INSTITUTIONAL APPETITE GROWS FOR YIELD-DRIVEN PRODUCTS‍

According to Archit Garg Executive Director, Capital Markets at Lighthouse Canton in India, the appeal of REITs and InvITs lies in their dual benefit: steady income streams and capital appreciation. “What is beneficial for REITs and InvITs is that they are backed by portfolios that throw off steady income,” said Garg. “They provide diversification beyond traditional equities and fixed income, offering both a fixed, steady income stream and a capital upside.”‍

Institutional players are at the forefront of this shift. Garg observed that while family offices are showing interest, the focus remains heavily skewed towards institutional investors, including insurance companies and pension funds, which are drawn to the stable yield these products offer.

“It’s much more suited to institutional investors seeking stable returns. Over the last year, returns have ranged between 14% to 15%, which, if compared to Nifty’s returns over the same period, are higher,” he pointed out.

Interestingly, Garg highlighted the long-term potential of these vehicles to rival traditional equity market gains. “While Nifty might outperform in the long run, REITs and InvITs have the potential to deliver returns closer to Nifty over time. They can evolve into strong products, particularly for institutional players,” he added.‍

An article in the Indian daily Economic Times pointed out that fund-raising by REITs and InvITs in India rose to USD 2.05 billion in FY24. This is an increase from the historic low of USD 139 million in FY23, indicating the growing interest in these investment vehicles and their ability to raise capital on a large scale.

INFRASTRUCTURE FOCUS AND INVESTMENT AREAS‍

When it comes to the infrastructure sectors underpinning InvIT portfolios, road infrastructure remains dominant. “So far, I’ve seen a lot more road infrastructure — most InvITs are road-focused,” Garg noted. This emphasis is largely due to the steady, predictable cash flows that toll roads and highway projects generate.‍

However, there is growing anticipation around other sectors. “Power will continue to be a strong asset,” he said. “Data centers, though still a small sector in India, could emerge as a compelling play over time.” With digital transformation accelerating across Asia, data centers are hot property in more mature markets, and India may soon follow suit.‍

Another crucial factor driving InvIT growth is the Indian government’s infrastructure monetisation push. ‍

“In India, there’s always this infrastructure monetisation being done by the government. It’s a big trend,” Garg said. ‍

The National Monetisation Pipeline (NMP) initiative in the country, for instance, aims to unlock value in public sector assets by tapping private investment — a strategy that could further fuel the expansion of InvITs.‍

FOREIGN CAPITAL DOMINATES FOR NOW‍

Despite the rising domestic appetite, foreign institutional investors (FIIs) continue to dominate investments in Indian infrastructure.

‍“If I look at infrastructure, the large investors in India have largely been foreign players,” Garg explained. “Brookfield has been very active, and sovereign wealth funds like Temasek, Mubadala, and Qatar Investment Authority have shown strong interest in real estate and infrastructure projects.”‍

As an example Temasek Holdings, Singapore's sovereign wealth fund, continues to back India's renewable energy push. In December 2024, JSW Energy announced a USD1.47 billion acquisition of O2 Power's 4.7 GW renewable portfolio — a company supported by Temasek and EQT Infrastructure. The deal highlighted Temasek's strategic commitment to India's clean energy transition.‍

Similarly, Abu Dhabi's sovereign wealth fund, Mubadala Investment Company, has become a key player in India's infrastructure sector. Formed in 2017 through the merger of Mubadala Development Company and International Petroleum Investment Company, it continues to actively pursue investment opportunities across India's infrastructure landscape.

The heavy tilt towards FII participation underscores the global appeal of India’s infrastructure story, but Garg expects this dynamic to shift gradually. “More FII and FPI investments are happening today, but over time, we should expect more domestic participation,” he predicted.

The increasing alignment of India’s financial markets with global benchmarks, such as the country’s inclusion in the JPMorgan bond index, could also influence this transition. “The bond index inclusion signals growing foreign confidence in India’s financial ecosystem — a positive indicator for REITs and InvITs alike,” Garg added.

A DEVELOPING BUT PROMISING MARKET

Despite their promise, both REITs and InvITs remain in the early stages of their evolution in India. “It’s still a young product,” Garg admitted. “REITs have been around for a while, but absorption has been slow, unlike in mature markets like Singapore where they are very stable products.”

However, as more institutional investors recognise their potential and the government continues its push for infrastructure monetisation, these vehicles are likely to gain momentum. The long-term outlook remains bullish, driven by road and power projects, with data centers and other digital infrastructure assets poised to enter the spotlight.

The coming years could witness REITs and InvITs becoming integral components of institutional portfolios — not just as yield-generating instruments but as strategic assets capable of delivering steady returns and growth, aligning with the broader transformation of India’s capital markets.