Decoding REITs, and India's Water Industry
Personal finance, investment philosophies and fun facts - all without the jargon.
Welcome to the sixteenth edition of the Bodhi Newsletter! In today’s edition, we cover:
Decoding REITs: Real Estate Investment Trusts Explained
India’s Water Industry: Opportunities, Challenges, and Growth Potential
Decoding REITs: Real Estate Investment Trusts Explained
By Heet Dhawale
Imagine you're interested in the real estate market but don't have the resources to purchase and manage properties directly. Real Estate Investment Trusts, or REITs, function like a mutual fund for real estate, allowing you to invest in property without the hands-on challenges of ownership.
What are REITs?
A REIT is a company that owns, operates, or finances income-producing real estate. These properties can range from shopping malls and office buildings to apartments and hotels. By purchasing shares in a REIT, you effectively own a portion of these real estate assets and can earn a share of the income generated without directly managing the properties. REITs work by pooling money from investors to buy and manage real estate. A REIT generates revenue by leasing out its properties and collecting rent from tenants. After deducting expenses like property tax, insurance, interest, and income taxes, among others, the remaining cash flows, known as net distributable cash flows (NDCF), are distributed to unit holders.
REITs come in several versions, each focusing on different aspects of real estate:
Equity REITs: These REITs own and operate income-generating properties, earning revenue primarily through leasing space and collecting rents.
Mortgage REITs (mREITs): Instead of owning properties, mREITs provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities, earning income from the interest on these financial assets.
Hybrid REITs: As the name suggests, hybrid REITs combine the investment strategies of both equity REITs and mortgage REITs, diversifying their portfolios by owning properties and holding mortgages.
Currently, there are four main REITs operating in India: Embassy REIT, Mindspace REIT, Brookfield REIT, and Nexus REIT. All operate in different real estate areas.
Why should you consider investing in REITs?
The benefits of investing in a REIT are manifold. Firstly, Investing in REITs allows you to spread your investment across a variety of properties and locations, reducing the risk associated with investing in a single property. And unlike physical real estate, many REITs are publicly traded on stock exchanges, making it easy to buy and sell shares without the complexities of property transactions. REITs are also required to distribute at least 90% of their taxable income to shareholders as dividends, thus providing a steady income stream.
Secondly, the Securities and Exchange Board of India (SEBI) has implemented stringent regulations to enhance transparency and governance in REITs. These measures include mandating that 80% of a REIT's assets be invested in completed, income-generating properties, thereby minimizing risks associated with land acquisition and construction. Additionally, to maintain financial prudence, a REIT's debt cannot surpass 49% of its asset value, and exceeding 25% necessitates majority unit holder approval.
Understanding REITs cannot be complete without the factors that can affect the prices. Some of the factors include the rising interest rates that can affect REITs by reducing the present value of future cash flows due to higher discount rates, while also increasing refinancing risks for the trust. Similarly, a change in sponsorship can shift market sentiment, impacting prices either positively or negatively. Operational aspects like occupancy rates and vacancies play a key role in determining the income potential of the REIT, while limited liquidity on the exchange can lead to price volatility. Additionally, the acquisition of new assets typically enhances distributions and overall value. Finally, factors like changes in taxation and the pledging of shares by sponsors or major investors can directly affect the post-tax returns and market perception of the REIT.
In conclusion, Real Estate Investment Trusts (REITs) offer an accessible way to invest in real estate without the hassle of direct property management. By pooling funds to invest in a diversified portfolio of income-generating properties, REITs provide both regular income and diversification. This provides investors with the opportunity to manage their risk profiles in a safe and reliable manner.
India’s Water Industry: Opportunities, Challenges, and Growth Potential
By Dersh Savla
Introduction
The worldwide water treatment industry is experiencing a very rapid expansion with a CAGR of 7.1%, and it is projected to grow to USD 489.07 billion by 2029. The growth is fuelled by a rising population, which is predicted to rise to a whopping 9.7 billion by 2050. As cities grow and wastewater generation increases, a need for better treatment methods such as membrane filtration, desalination and smart monitoring systems arises. The sustainable water management solutions sector is important for global water security as it combats water scarcity, and governments and industries are investing in it.
Water represents an important resource not only for India’s economic development but also for its social progress due to population growth, increased urbanisation and greater industrial water requirements, and this calls for a transformation of India’s water sector which is currently valued at around USD 14 billion, and further predicted to grow to USD 19.8 billion by 2030, with a growth rate of 6.1% CAGR. Agriculture in India uses the most water, using almost 75% of all water. Other sectors, including drinking water (7%), industry (4%), and energy generation (9%), also contribute considerably to the overall demand.
India faces a quite severe water crisis despite this growth, in addition to demand greatly exceeding supply. India, having 14% of the world’s population, can only access 4% of the world’s freshwater resources. Over-reliance on groundwater is a major concern, as 70% of irrigation and 80% of municipal water supplies come from underground sources that are rapidly depleting. This crisis is further exacerbated by climate change, inefficient water management, and urbanization.
Government Initiatives and Investments
India’s water sector is undergoing rapid transformation, driven by several large-scale government initiatives aimed at ensuring sustainable water management, improving infrastructure, and addressing the growing water crisis. With increasing urbanization, industrialization, and climate-related challenges, the need for efficient water conservation, wastewater treatment, and equitable distribution has never been greater. Recognizing this, the Indian government has launched a series of ambitious programs to enhance water supply, sanitation, and pollution control.
Recognising this urgency, the Indian government has allotted Rs. 1.1 lakh crore for water infrastructure development. This investment focuses on upgrading water supply networks, wastewater treatment plants, and sewage systems, creating significant opportunities for the private sector and EPC (Engineering, Procurement, and Construction) companies.
One of the most impactful initiatives is the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), introduced in 2015, aimed at enhancing urban water supply and sewage networks. The programs focus on universal water coverage in cities, improving stormwater drains and the adoption of efficient water management technologies. Under AMRUT 2.0, the government plans to extend these services to around 4,700 towns and ensure that each and every household has access to clean water while promoting sustainable urban water management.
Another key program is the Namami Gange Programme launched in 2014, which aims at rejuvenating the Ganga River by building wastewater treatment plants and controlling the industrial pollution while focusing on sewage management, biodiversity conservation and zero-liquid discharge norms for industries. This initiative has made significant strides in improving the water quality. Complementing this effort is the National Mission for Clean Ganga (NMCG), which works on restoring the river’s ecosystem by constructing sewage infrastructure, afforesting riverbanks, and implementing community-driven waste management strategies.
Addressing the critical issue of rural water supply, the Jal Jeevan Mission (JJM), launched in 2019, is one of the most ambitious water initiatives in India. Its objective is to provide piped drinking water to every rural household by 2024. The program promotes sustainable water management through rainwater harvesting, reviving traditional water sources, and leveraging IoT-based water monitoring systems. With over 13 crore rural households already benefiting from tap water connections, JJM is significantly reducing dependence on groundwater and improving the quality of life in rural India.
Similarly, the National Rural Drinking Water Program (NRDWP) has been a longstanding initiative supporting rural water infrastructure. While now integrated with JJM, NRDWP plays a crucial role in ensuring access to safe drinking water, particularly in regions facing arsenic and fluoride contamination. It emphasises on decentralized water management through community-led conservation efforts and groundwater recharge projects.
These initiatives underscore the government’s commitment to tackling India’s water challenges through large-scale infrastructure development, technological advancements, and community-driven participation. By focusing on water conservation, pollution control, and equitable distribution, these programs aim to create a more resilient and sustainable water ecosystem. As India continues its journey toward water security, these efforts will be critical in ensuring clean and accessible water for all.
Growth of the Water EPC Sector
One of the fastest growing sectors within the industry is Water Engineering, Procurement, and Construction (EPC), which is projected to grow at a staggering CAGR of 9.5% between 2025 and 2030. EPC firms play an important role in laying the basic foundation for India’s water infrastructure, handling the construction of water supply networks, wastewater treatment plants, and desalination facilities. This growth has fueled demand for essential components like pipes, pumps, valves, and filtration systems, further strengthening the sector’s ecosystem. With government allocations of ₹1.1 lakh crore ($13.2 billion) towards water infrastructure, EPC firms are well-positioned to drive large-scale projects that will enhance water supply and treatment capabilities across the country.
Private sector participation has also been increasing, particularly in industrial wastewater treatment and municipal projects. Many industries, including textiles, pharmaceuticals, and manufacturing, have begun setting up in-house wastewater treatment plants to comply with stringent environmental regulations and reduce their water footprint. The shift toward sustainable water management is further supported by Public-Private Partnership (PPP) models, which encourage collaboration between industries and municipal bodies to develop advanced treatment and reuse solutions.
As India moves towards a more water-secure future, the synergy between government programs, private sector investments, and EPC firms will be instrumental in shaping the industry. With the rising demand for innovative water treatment technologies and smart infrastructure solutions, the sector presents immense opportunities for growth, investment, and sustainability-driven development.
Conclusion
India’s water sector stands at a critical juncture, facing a complex blend of challenges such as water scarcity, pollution, and infrastructure deficits. However, these challenges also present significant opportunities for growth and innovation. With government initiatives, private sector investments, and technological advancements leading the charge, the sector is evolving rapidly. The expansion of the Water EPC segment, coupled with growing collaboration through Public-Private Partnerships (PPP) and international partnerships, will play a pivotal role in developing the necessary infrastructure, improving water quality, and promoting sustainable management practices. As India continues its path towards water security, a coordinated effort between all stakeholders will be essential to ensure an equitable, resilient, and water-efficient future for generations to come.
Major Players in the EPC Business:
