Railways plans REITs route to monetize surplus land assets

The decision is significant as Railways has lagged behind in achieving its targets under the National Monetisation Pipeline (NMP) for the last two years.

According to the persons mentioned above, Rail Land Development Authority (RLDA), the entity that develops and monetizes surplus Railway land, will shortly study its land parcels (both developed or under development) for monetization through a REIT sponsored by it.

The plan is to float several location- and sector-specific REITs that would invite investment from global and Indian investors keen to participate in and earn dividends from real estate investments—without having to buy, manage or finance any properties themselves.

According to one of the people cited above, both commercial and residential assets—including surplus development on land with Railway colonies and recreation facilities developed by RLDA—may be transferred to the proposed REITs.

The REITs would pay for these assets through the investment they get while earning revenue from lease rentals of the built-up commercial and residential real estate assets transferred to these REITs.

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

Questions sent to the spokesperson for the railway ministry about the plan remained unanswered.

A railway official said the plan might not be imminent, but it is on the cards.

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

The move is part of a Railways action plan to increase its participation in the ₹6 trillion NMP announced by the finance ministry in 2021. The railways has been given a big chunk of these NMP goals with a monetization target of ₹1.52 trillion over a four-year period ending 31 March 2025.

Two years into the exercise, Railways has performed miserably, accounting for just about ₹800 crore of monetization in FY22 against a target of ₹ 18,000 crore. It is expected to fall short of even a downward revised ₹30,000 crore target for FY23 (the earlier target for FY23 was ₹57,222 crore).

“We are thinking on those lines (to set up REITs) as the real estate market is on an upswing again after remaining subdued for more than a decade. But the plan is still some way off and may take some time to fructify,” said RLDA vice chairman Ved Parkash Dudeja.

With regard to the prime real estate available in the heart of all major cities, Railways plans to commercially develop land around stations that it is redeveloping, a portion of which can be transferred to the proposed REIT to get a better valuation.

RLDA is redeveloping stations at three key locations—Delhi, Mumbai and Ahmedabad. In Delhi itself, out of 2.5 million sq metres of the area to be developed, around 1.4 million sq metres would be available for commercial development, which would give RLDA rental income for a REIT sponsored by it.

The total surplus land with the Indian Railways is about 43,000 hectares.

But a large chunk of this is narrow tract of land along the railway tracks that cannot be exploited commercially. However, Railways has colonies on prime land across cities that has the potential to generate revenues 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 developed assets could be used by the proposed Railway REIT.