Floating REITs: Private Equity’s next move
At a time when the realty sector is weak in the knees due to poor sales and is looking for options to get over with the liquidity crunch, private equities have taken a step towards betterment by floating Real estate investment trusts (REITs). Previously planned by market regulators to introduce in 2008, REITs will be re-introduced by SEBI as an alternative option for funds and a tool for a price correction.
Tata Realty and Infrastructure, Blackstone and Kotak Realty Funds are few such private equity funds in the nation that have been mulling over options to float REITs, after the SEBI issue it’s final guidelines. With the advent of REIT, the real estate sector will be thrown open to the large source of funds eventually.
Regulations
The capital market regulators have raked up the draft guidelines on REITs, according to which the size of the funds should not be less than 1000 crores in single projects with the minimum initial offer size of Rs 250 crore and public float of 25%. A REIt can simply be put as a tax efficient investment tool, used to invest in real estate assets in order to bring to pass income that is eventually passed to investors.
As an attempt to make sure that only established players launch REITs, Rs 1000 crore has been kept as the benchmark for the minimum size of the assets. At the beginning, the minimum investment size will be fixed at Rs 2 lakh that will prevent the retail investors from entering the new market. Around 90% of Reit assets must be in ready properties generating income, the rest 10% can be in specified assets.
WHY REITs?
According to property consultants, India, at present has nearly 400 million sq ft of office space and mall properties that value to a whooping amount of Rs 3.72 lakh crore. REITs minimize the development risk and offer high liquidity that is lacking in real estate markets. REITs have a good track-record abroad, in channelizing both the institutional and retail money in a lucrative manner into the realty sector. They are endowed with a trust-sponsor–manager structure that makes sure the interest of every developer is taken care of.
Reits are expected to bring about the much awaited relief to the commercial real estate sector and allow developers to unlock the value of assets and create liquidity. Universally accepted as one the best investment avenues, Reits have garnered the interest of offshore investors who have been looking for core opportunities in India. Stamp duty and taxation are the two aspects which play a significant role in the success of Reits in the country, however, no clarity has been in this regard.
