Sebi revives real estate investment for realty sector

By Accommodation Times News Serivce

SEBI said, REITS can raise funds from any investors resident or foreign but initially only high net worth individuals and institutions should be offered the units and so has proposed to keep the minimum ticket size for investment at 2lakh and Rs 1lakh

Sebi the capital market regulator has revived the proposal to allow the real estate investment trusts, or REITs in the country. The attempt made is to provide the developers and private equity funds access to liquidity and attract money for the sluggish real estate sector. After dumping the original form five years before the regulator had proposal real estate mutual funds which also didn’t materialize. REITs primarily invest in completed revenue generating real estate assets that are comparatively less risky than investing in under construction properties and provide regular income to investors for the rentals received. Mr. Anshuman Magazine – Chairman & Managing Director of CBRE South Asia Pvt. Ltd said, this is a welcome move. Once in place it will provide an additional exit route for investors and enable retail money to be channelized into India’s realty sector through a regulated network. The introduction of REITs in the long term would propel the sector, spurring capital inflows and bringing institutional credibility.

SEBI said, for such rapidly growing industry it is very crucial that investment vehicles such as REITs come out. The regulator have also proposed that at least 90% of the value of the REIT assets would have to be in completed revenue generating properties and the balance 10% in others. Mr. Lalit Kumar Jain, CREDAI chairman said, REIT will definitely be a positive step for the sector since liquidity position of developers could increase, REIT will also result increased supply of foreign funds for the sector that it struggling for funds in view of the RBI restrictions and negative weight age given to real estate.  It will also give a big boost to the rental housing sector. There should be some clarity on Taxation issues around of the instrument. The finance ministry will have to come out with the necessary guidelines.

SEBI said, REITS can raise funds from any investors resident or foreign but initially only high net worth individuals and institutions should be offered the units and so has proposed to keep the minimum ticket size for investment at 2lakh and Rs 1lakh. Adding further the regulator body said, the regulator has proposed that sponsors should also compulsorily maintain a certain percentage of holding in the REIT “to ensure a ‘skin-in-the-game’ at all times. Even in those cases where the sponsor sells its units, it shall arrange for another person or entity to act as the re-designated sponsor. Analyst says, Sanjay Dutt, executive managing Director, South Asia, Cushman & Wakefield said, Sebi’s move to issue this consultation paper will revive substantial investor interest from domestic and global investors in India’s currently subdued real estate markets as it moves towards more organized and globally well accepted practices of funding real estate development. Allowing REITs to operate in India would be a sign of the maturity of the Indian real estate markets as globally REITS are found in mature economies. This is because it reduced individual speculation in real estate assets and allows for more professional investment and management in the sector.

About REITs:

A REIT would have to be set up as a trust and wouldn’t be allowed to launch any schemes. Such an entity would have to apply for registration with the regulator and would have a trustee, sponsor, manager and principal value. Once registered, it would be able to raise funds through an initial offer and its units need to be mandatorily listed on an exchange with the net asset value declared at least twice in a year.  The regulator broadly has applied a framework similar to that of an initial public offering (IPO). The eligibility criterion for REITs says only large and established asset management firms can participate.
For an IPO, the minimum asset size of REITs should be Rs 1,000crore. As per draft rules, only entities that have at least 90 percent of the investment in completed revenue-generating projects can issue REITs. REITs will be able to invest in properties directly or through special purpose vehicles. REITS will thus not be allowed to invest in vacant land or agricultural land or mortgages other than mortgage-backed securities, thus bringing more transparency into the sector. 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 percent has to be publicly floated.





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