to buy shares of a REIT in the same way as a mutual fund.
Currently, investors who make investments in property look to holding it for the maximum possible period their financial resources permit. Usually, such investors buy into an under-construction property and sell it (even when not complete) at the first hint of an appreciation in value. This speculative nature of investment is responsible for high prices and also contributes to delays, say industry sources, for there is a temporary suspension of funds towards the construction process.
The draft Sebi regulations allow only high net worth individuals and institutions to invest in REITs and has kept the investment threshold at Rs 2 lakh.
As with the mutual fund industry, the market regulator has mandated that only serious players enter this space too. Then draft states that only sponsors having a net worth of at least Rs 20 crore and minimum five years of experience would qualify and the manager should have a net worth of Rs 5 crore and at least 5 years of experience in fund management in the real estate industry.
Sebi has also proposed that 90 per cent of the value of the REIT assets shall be in completed revenue generating properties and 10 per cent can be in other assets and put a condition that at least 90 per cent of the net distributable post tax income shall be distributed to the investors.
To begin with, all REIT schemes will have to be close-ended real estate investment schemes that will invest in real estate with an aim to provide returns to unit holders. Returns will be derived mainly from rental income or capital gains from real estate. The minimum size of an initial public issue will not be less than Rs 250 crore, of which at least 25 per cent has to be publicly floated.
“Lot of emphasis has been given to transparency and disclosures. Indian investors will get an additional investment opportunity to invest in real estate. It will also benefit real estate developers who will be able to transfer their developed assets into a REIT,” said Bhairav Dalal, associate director, PwC India.
Real estate experts have welcomed the move. “Once in place it will provide an additional exit route for investors and enable retail money to be channelised into India’s realty sector through a regulated network. The introduction of REITs in the long term would propel the sector,