It is being contemplated by the Securities and Exchange Board of India (SEBI) to make Real Estate Investment Trust (REIT) a novel investment mechanism. Basically, what a REIT does is it owns and manages income-generating developed property. Furthermore, it is designed to offer common units to the public as an investment option. These units symbolize ownership in the business of managing income-producing properties.
It has been observed that REITs will in future provide an opportunity to real estate developers to commercialize developed property, thus providing an exit avenue. What else it will do is also provide overleveraged companies an opening to deleverage. Moreover, it will increase the profundity of the Indian real estate market and provide extra liquidity.
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Through a regulated mechanism, REITs will also allow people to channelize their investments into India's realty sector. It makes an ideal choice for investors wanting to invest in real estate without the botheration of checks on property titles and the excess of regulatory approvals since the investment in REITs is asset-backed. Moreover, REITs are expected to infuse a fresh lease of life into an otherwise choppy market while considering the current economic slowdown and paucity of funds.
Uneven Road to REITs
The draft SEBI (Real Estate Investment Trusts) Regulations, 2013, seems to be well thought out. But the fact is that there is still much to be done to make the REIT structure commercially feasible. What are being considered as the major road blocks are foreign investments in REITs, taxation of REITs and stamping of agreements relating to transfer of property to the REITs. Apart from these problems, there is also an urgency to fix the following issues to make the REIT regulations workable.
One of the essential grounds of the draft REIT regulations is the need to provide an exit path and liquidity. But the definition of "real estate" seems rather thin. The definition of "property" or "real estate" must be broadened to include all residential and commercial property and completed infrastructure assets such as highways and roads that have a regular income flow.
Policy Marshland
What this policy will do is it will give a broader coverage of REIT regulations to supply to the funding requirements of not just real estate but the wider infrastructure sector in India too. Moreover, the sponsor eligibility condition of five years' experience in the real estate industry on an individual basis must be broadened to make sure non-core real estate players like hospitals, hotels and other corporate houses with real estate to participate in REITs as well. According to the draft REIT regulations, it makes sure that a REIT cannot undertake an initial public offer without the prescribed minimum asset value.
It is being contemplated by the Securities and Exchange Board of India (SEBI) to make Real Estate Investment Trust (REIT) a novel investm...
