REITs: Can it revive realty sector?

Oct 12 2013, 19:22 IST
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SummarySebi has notified the draft regulations for REITs, a long-standing demand of the realty sector.

spurring capital inflows and bringing institutional credibility, said Anshuman Magazine, Chairman & MD, CBRE South Asia.

Allowing REITs in India has been a long pending demand of the real estate sector. After five years of waiting, Sebis move to issue this consultation paper will revive substantial investor interest from domestic and global investors in Indias currently subdued real estate markets as it moves towards more organised and globally well accepted practices of funding real estate development, says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield.

The move comes at a time when the real estate sector is facing a slowdown in demand, and Dutt says that both the regulator and the government should move in quickly and facilitate the functioning of REITs as it would be a significant boost to the industry.

If implemented, timing would be great as many developers are faced with liquidity issues as they have large amounts of capital locked in commercial assets and are finding it difficult to sell due to the large ticket sizes. Investments by REITs in these and other assets would indirectly reduce the exposure of banks to risky assets as they had provided construction finances to many projects, says Dutt

We have nearly 57 million sq ft of office space vacant, with approximately 132 million sq ft of additional office demand by 2017 and over 200 million sq ft of investible Grade A leased office assets not sold, which would be quickly monetised through REITs at a cap rate of 9-10.5 per cent, adds Dutt.

Along with the draft guidelines, the process to establish a real estate regulator is also underway with the government introducing the bill in the Rajya Sabha.

One concern is with regards to the strengthening of our legal framework surrounding real estate in India, which is a pre-requisite for REITs to thrive here. The Real Estate Regulatory Bill is a move in the right direction, says says Anuj Puri, chairman and country head, Jones Lang LaSalle India.

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