Financialisation of Real Estate Sector Still in Early Stages: Certus Capital's Ashish Khandelia

SEBI's ongoing efforts, including recent proposals in its consultation paper, aim to ease business requirements and improve frameworks for REITs and InvITs. Measures like allowing inter-se transfers among sponsor groups, using interest rate derivatives, and simplifying credit rating requirements are positive steps toward increasing transparency and accountability.

Regulations like RERA and IBC, introduced years ago, have already shown results, and REITs have been a key development in democratizing real estate investments. These instruments allow investors to access real estate returns without the complexities of physical ownership, offering higher returns compared to traditional fixed-income products. The financialization of real estate is still in its early stages, but it is transforming how average investors can diversify and enhance their portfolios.

REITs were introduced only around 2019, after a long regulatory development process that began almost 8-10 years earlier. The process of familiarizing investors with these new instruments takes time, much like how mutual funds took time to gain popularity in India.

There has been progress, though. The REIT Association, for example, has been proactive in educating investors through events and conferences. Education is key, and while it is still a work in progress, the momentum is growing.

Platforms like Earnnest.me are also part of this educational journey, showing investors how real estate credit works and how they can access these investment opportunities in a simple, transparent way. We have seen a strong repeat investment rate of 77 per cent, which indicates that once investors understand the product and experience it, they are willing to come back.

The knowledge gap will gradually reduce as more people invest in these products, and the industry continues its efforts to simplify and educate the retail investor base.

A few key factors are driving the growth in the senior living housing sector. Firstly, India is witnessing the emergence of a more affluent senior population. Many seniors now have enough savings to finance high-quality senior living facilities, unlike in the past when they relied on family support or pensions. Secondly, the social stigma around senior living is also fading. Many seniors now prefer to live in such communities, where they can have their social circle along with access to medical and other facilities.

However, the senior living segment is still relatively nascent, and there are not many dedicated operators in the space. The key to success will be in developing the right product with a strong service angle. Developers and investors need to understand the unique needs of this demographic. We have seen success in places like Chennai, where our partner has a very popular senior living project that has done well.

In my view, such factors are unlikely to have a direct or material impact on FIIs’ interest in India’s real estate sector. Global investors who are already active in India are here for the long term and have established a strategic presence. Many of these investors have been in India for over a decade, and some continue to invest despite global market fluctuations.

While global factors can affect the broader investment landscape, India is still in a strong position, and private investments will continue to flow into the real estate sector. I don’t foresee any major disruption in FII activity in India’s real estate market, even with changes in global policies.

We are extremely bullish on India’s bond market as for the first time there is real education happening about fixed-income products for Indian investors. This is something that was largely missing in the past. Secondly, as India’s GDP continues to grow, the need for a robust bond market will become even more critical. For example, if a company wants to build a new plant, it will typically need a significant amount of debt financing, not just equity. This is where bond markets play a crucial role.

The future of India’s bond market will see more innovation, through platforms like earnest.me, which focus on real estate debt. We are working to build a specialized alternative bond market, starting with real estate and eventually expanding to other sectors.

Digital financing platforms and online platforms will be instrumental in driving the growth of the bond market, just as mutual funds did for equities about 30 years ago. We are excited to be part of this transformation.

Real estate as an industry is fragmented, with even large developers like DLF or Oberoi facing challenges in accessing capital through traditional bond markets. Smaller players, in particular, find it difficult to raise funds through bonds. Specialized platforms like earnnest.me understand the market, the credit risks, and how to navigate them.

Our platform allows investors to access real estate credit, which is traditionally an illiquid market, but in a much more accessible and transparent manner. By offering fractionalized investments, we provide better liquidity compared to traditional real estate investments. Additionally, we give investors full transparency into where their money is going and how it is being utilized.