Railroads are planning REIT's route to monetize excess land assets

The decision is important as Railroad has fallen short of meeting National Monetization Pipeline (NMP) targets for the past two years.

According to the individuals mentioned above, Rail Land Development Authority (RLDA), the entity that develops and monetizes excess railway land, will soon study its land parcels (both developed and under development) to monetize through a REIT sponsored by it.

The plan is to launch several location- and industry-specific REITs that would attract investment from global and Indian investors eager to participate in and earn dividends from real estate investments – without having to buy, manage or finance real estate themselves.

According to one of the people mentioned above, both commercial and residential assets – including excess land development with railroad colonies and recreational facilities developed by RLDA – could be transferred to the proposed REITs.

The REITs would pay for these assets through the investment they receive while generating income from lease rentals of the accumulated commercial and residential real estate assets transferred to these REITs.

Pure land parcels offered on leasehold to private developers will not be transferred to REITs, and only built-up structures that can generate regular income will be used for this purpose.

Questions to the spokesperson for the Ministry of Railways about the plan went unanswered.

A railway official said the plan may not be imminent, but it is on the agenda.

A REIT is a company that owns, operates, or finances income-producing real estate. Modeled after mutual funds, REITs pool the capital of numerous investors and enable them to earn dividends from real estate investments without having to purchase real estate themselves.

The move is part of an action plan by the Railways to increase participation in the railways €6 trillion NMP announced by the Treasury in 2021. The railways have been given a large share of these NMP targets with an objective of generating revenue from €1.52 trillion over a four-year period ending March 31, 2025.

Two years after the exercise, Railways has performed appallingly, accounting for approx €800 crore in revenue generation in FY22 against a target of € 18,000 crores. It is not expected to even make a downgrade €30,000 crore target for FY23 (the previous target for FY23 was €57,222 crores).

“We are thinking in that direction (to set up REITs) as the real estate market is picking up again after being subdued for more than a decade. But the plan is still a long way off and it may take some time to bear fruit,” said RLDA Deputy Chairman Ved Parkash Dudeja.

With respect to the prime real estate available in the heart of all major cities, Railways intends to develop commercial land around stations it redevelops, part of which could be transferred to the proposed REIT to provide better valuation to get.

RLDA is redeveloping stations in three key locations: Delhi, Mumbai and Ahmedabad. In Delhi itself, of the 2.5 million square feet of the area to be developed, approximately 1.4 million square feet would be available for commercial development, providing RLDA with rental income for a REIT sponsored by it.

The total surplus land at the Indian Railways is approximately 43,000 hectares.

But much of this is a narrow piece of land along the railway that cannot be commercially exploited. However, Railroad has colonies on prime land in cities that have the potential to generate revenue after redevelopment. Also, commercial potential exists around 1275 stations under Amrit Bharat Scheme in this year’s budget. RLDA is developing land around these stations and has done master planning for land development around 50 of these stations. Some of the assets developed could be used by the proposed Railway REIT.