REITs: An alternative route
The Real Estate Investment Trusts(REITs), which was initially all set to be launched in 2008, would soon see light as the Securities and Exchange Board of India (SEBI) has seeked public feedback on the same.
Advantages of the vehicle
This vehicle is expected to prove beneficial for investors with medium risk appetite. As per industry experts, the products introduced by the vehicle are likely to qualify on parameters like transparency, diversification, returns and liquidity. Retail investors would give it a second thought before using the product, as the entry barrier is at Rs 2 lakh, which is even higher than the minimum investment limit of Rs 1 lakh in the SME (small and medium enterprises) exchange.
Introduction of these investment vehicles would help in enhancing the transparency of the market. 90% of the money would be allowed to be invested only in complete and revenue-generating projects. In addition to it, unless a project is worth Rs.1000 crore or more, the entire corpus cannot be invested in it. This would not only ensure diversification but also ensure secure transactions and prevent investors to put their funds in properties that are under-construction.
The Group Chief Financial Officer of DLF, Mr.Ashok Tyagi, stated that REIT norms introduced by SEBI will lead to capital appreciation in realty sector. He informed that a series of regulatory steps need to flow in to make the same a reality. SEBI draft is just a step, which needs to be followed by some consistent steps taken on the taxation front.
Valuation norms of the REIT
The valuation norms designed by the REIT are strict. As per the norms, projects need to be valued at least once a year and needs to be updated every six months. In accordance to the same, the net asset value of the REIT would be declared twice a year. As per market reports, REIT would not pay more than 110% or sell a property at less than 90% of the property price.
When asked about the current traction in the NCR realty market and about the the response to Crest and Camellias projects of DLF, he informed that both the projects were excellent successes. He further mentioned that if a project is rightly located and priced, untapped demand is sure to come seeking it.
