As India’s real estate sector suffers from a liquidity crunch and continues to undergo growth pains as it moves towards maturity, San Francisco-based private equity firm Golden State Capital (GSC) is viewing Foreign Direct Investments into the arena of office assets.

With construction costs rising in India, the firm is confident on the long-term potential. GSC is looking at a Real Estate Investment Trust (REIT) “of above $500 million … [with] assets built and leased in the last two to four years in a very competitive environment, besides stabilized assets with blue-chip tenants,” GSC Chairman Sumit Nanda told business daily Business Standard. GSC is targeting opportunities that are fully leased out or have certainty to be leased out soon.

REIT allows individuals to invest in large-scale, income-producing real estate, with the benefit of owning real estate without having to be a landlord.

GSC says it views REIT as a good platform to acquire high-quality office assets in cities like Gurgaon, Noida, Bangalore, Pune, Chennai, Mumbai and Hyderabad that will fetch investors' steady returns and a diversified portfolio.

The recently released draft guidelines by the Securities and Exchange Board of India (SEBI) looks at allowing listing of REITs. The draft has also proposed that 90% of the value of the REIT assets be in completed revenue generating properties. A process to establish a real estate regulator is under way.

Currently, there is not much demand to relieve the glut of office space. Rising vacancies and declining rents are prompting developers to put off projects. For instance, India’s largest publicly listed builder, DLF Ltd., is holding off on building new office towers until it sees demand recovering, Ashok Tyagi, group chief financial officer, said on a conference call with analysts on Oct. 31.

Annual supply this year is estimated at about 40 million sq ft, while demand will be for about 25 million sq ft, according to commercial real estate brokers and consultants Cushman & Wakefield. Mumbai registered the highest net office space absorption at 4.7 million sq ft, followed by Bengaluru at 4.6 million sq ft in 2013.

While Nanda accepted there were challenges and volatility in the short term, “we believe the economy will see a turnaround soon … [and the] emergence of a new chapter in the India growth story.”