Stakeholders views on REITs Guidelines – Part 1
Recently, Securities and Exchange Board of India (SEBI) the Indian market regulator issued draft regulations for establishing Real Estate Investment Trusts (REIT) within the country. With the aim of raising capital via an initial offer prior to which subsequent funds would be raised via follow-on offers, the Sebi proposed REITs after five years of initially withdrawing similar proposals. The latest draft is open for public comments till the 31st October 2013.
Salient guidelines of REIT:
The eligibility criteria for REITs would initially permit only large and established asset management firms, as the minimum asset size of REITs is required to be more than Rs. 1000 crore. The REIT would need to have parties like trustee (registered with SEBI), manager, sponsor and principal valuer. All the REIT schemes are mandated to be close-ended investment in real estate schemes which would invest within realty with the aim of providing returns to its unit holders.
Capital gains or rental incomes from the real estate would be the main source from which the returns would be derived from. The minimum size of an initial public issue need to be more than Rs. 250 crore of which a minimum of 25 per cent has to be publicly floated.
As per experts:
The realty sector of the country has a reason to celebrate as the willingness to establish REITs has clearly been expressed by the regulator. SEBI’s cautious approach adopted during this initial period is appreciable and acceptable. Experts are concerned about the strengthening of the legal framework which surrounds the Indian real estate with regards to REITs. As this would be a prime prerequisite for REITs to be able to thrive and sustain here. Thus, experts believe that the Real Estate Regulatory Bill was a move towards the right direction.
As per realty consultants:
The long pending demand of the country’s real estate sector was to permit REITs. The regulator’s move to issue this consultation paper would substantially revive investor interest from both domestic as well as global investors to the country’s presently subdued realty markets. This move would take Indian towards more organized and globally accepted practices of funding real estate development. Permitting REITs to operate within India will be a sign of the Indian real estate maturing, as world over REITS exist only within mature economies. This would take place as the individual speculation within real estate assets would be greatly reduced and permit a more professional investment and management within the sector. Numerous developers and realty funds which have been looking at Singapore for REIT, may potentially consider investing within the REITS in India.
Risk averse global investors who are indisposed within the Indian real estate market might find ready leased assets having the least risk as well as option for exiting through REITS. Few of the real estate funds which have already been invested within office spaces would surely welcome the move.
