With the Securities and Exchange Board of India (Sebi) proposing to allow Real Estate Investment Trusts (REITs) in the country, the stage is set for investors to tap the real estate sector. Globally, these are common investment vehicles which pool investors’ money and invest in revenue generating assets, such as building, offices, warehouses and malls, and distribute a major part of the earnings among the investors.
Sebi had attempted to introduce REITs earlier as well and issued draft guidelines in 2008, but withdrew them later. When the concept was revisited, Sebi was more in favour of the mutual fund model for real estate investment. But even this could not take off. Now, Sebi has issued a draft regulation to revive an over-five-year old proposal of Real Estate investment Trusts Regulations, 2013, and invited public comments till October 31.
REITs are critical as they provide an exit avenue for developers to commercial properties who can channel money to other projects. The minimum sum required for making an investment in REIT will be R2 lakh. Analysts say REITs will open the gates for investors to invest in real estate sector and boost liquidity of cash-strapped developers.
Samantak Das, chief economist & director, research, Knight Frank India, said the draft regulations give a strong signal that Sebi is going to operationalise the REIT market in India on a high-priority basis.
“This is a very positive move, which will enhance the depth of the country’s real estate market and give financing and exit options to developers, on one hand, and avenues for investors, on the other. The timing of this move is important, keeping in mind the prevailing paucity of funds, coupled with the slowdown in economic growth,” he said.
A KPMG research note said the Sebi move will revive substantial investor interest in India's subdued real estate market. “REITs are a positive move towards a more professionally organised and globally well accepted framework for funding real estate development. The move will also reduce individual speculation in real estate assets,” the note said.
The Sebi draft guidelines say that REITs shall be set up as trusts. The relevant parties in a REIT structure will be a trustee registered with Sebi. The main advantage of REITs will be that they will be regulated and accountable to investors’ fund.
REITs can raise funds through initial offer and also follow-on offers after their listing. A REIT will have to come with