REITs underperformed on back of rising interest rates, WFH & vacancies in property after COVID

Real Estate Investment Trusts (REITs) is a company that owns and operates income-producing real estate and owns many types of commercial properties or real estate offices. Simply put, it resembles a mutual fund with real estate as the underlying assets. They invest money in completed and revenue-generating assets and developmental properties, mortgage-backed securities, corporate debt of the real estate sector.

However, this has been an asset class that has underperformed in the last one year.

While speaking to CNBC-TV18, Amit Bhagat, CEO & MD at ASK Property Fund said the most important and the most critical reason why REITs has not been performing is because of the increase in interest rates.

Bhagat said, “When interest rates go up, the value of the REIT is subdued, when interest rates go down, the value of the REIT goes up. So, the interest rate has been one of the biggest reasons for REITs not performing to the expectation of the investor.”

He added, “Secondly COVID and aftermath if you look at it, vacancies have slightly gone up especially in these special economic zones. Today the vacancies are in the range of 15 percent approximately and that is because of the special economic zones, work-from-home, hybrid model which is continuing and the biggest reason is the interest rates. Because of all these reasons REITs have not performed to the expectation of the investors.”

Bhagat mentioned that REITs could stabilise if interest rate hikes slow down and investors will have to wait for declining interest rates regime.