REITs get Sebi board’s approval The move will give developers easier access to funds and create a new investment avenue for investors ndia’s capital market regulator on Sunday approved a long-pending proposal to introduce real estate investment trusts (REITs)—a move that will give cash-strapped developers easier access to funds and create a new investment avenue for institutions and high net-worth individuals, and eventually ordinary investors. The Securities and Exchange Board of India (Sebi) secured the approval of its board to allow REITs and introduce a separate set of regulations to govern them, six years after it proposed introducing the trusts. The board broadly approved proposals put out in a consultation paper on REITs in October 2013. The launch of REITs has been delayed partly because of a perception that the taxation structure was unfavourable for investors. In the Union budget announced by the Bharatiya Janata Party (BJP) on 10 July, finance minister Arun Jaitley had said the government was planning friendlier tax norms for REITs and infrastructure investment trusts. REITs invest primarily in completed, revenue-generating real estate assets and distribute a major part of the earnings among their investors. Typically, the income of these trusts comes from the rentals received from such properties. REITs offer a less risky alternative to investing in under-construction properties and also provide a regular income. To begin with, though, only wealthy individuals or institutions will be allowed to invest in REITs. The Sebi board’s approval followed a weekend meeting between the finance ministry and the market regulator primarily focused on creation of new investment channels in the real estate and infrastructure sector. All REIT schemes, to begin with, will be close-ended real estate investment schemes that will invest in property with the aim of providing returns to unit holders. The returns will be derived mainly from rental income or capital gains from real estate. REITs, Sebi said, will be allowed to invest in commercial real estate assets, either directly or through special purpose vehicles (SPVs). In such SPVs, a REIT must have a controlling interest of at least 50% of the equity share capital. Further, such SPVs have to hold at least 80% of their assets directly in properties. REITs will be allowed to raise funds only through an initial offering and units of REITs have to be mandatorily listed on a stock exchange, similar to initial public offering (IPO) and listing for equity shares. An REIT will be required to have assets worth at least Rs.500 crore at the time of an initial offer and the minimum issue size has to be Rs.250 crore. The minimum subscription size for units of an REIT on offer will be Rs.2 lakh and at least 25% of the units have to be offered to the public. Subsequently, REITs can raise money through follow-on offers, rights issues or qualified institutional placements and the trading lot for such units will be Rs.1 lakh, Sebi said in a statement. “Reduction in the asset size to Rs.500 crore will attract more rent-yielding assets under the fold of this vehicle and allowing foreign investments, will attract pension funds and insurance companies, which have been proved as a catalyst of REITs markets globally... Both these can become drivers of growth for REITs in India,” said Neeraj Sharma, partner, Walker Chandiok and Co. Llp, a chartered accountants firm. According to an estimate by property broker Cushman and Wakefield, the assets that may qualify to be included in REITs may reach $20 billion by 2020, In the first three to five years, as much as $12 billion could be raised. To help develop the trusts, BSE has set up an 11-member advisory group of experts, bankers, legal professionals and consultants in the real estate industry, according to a statement on 10 July. The market regulator had said in its October consultation paper that although a REIT may raise funds from any type of investors, resident or foreign, initially only wealthy individuals and institutions will be allowed to subscribe to REIT unit offers.
Posted on: Mon, 11 Aug 2014 05:24:09 +0000