GAME CHANGER - REITs to play a bigger role
Recent move by markets regulator Securities and Exchange Board of India (SEBI) by relaxing rules for Real Estate Investment Trusts (REITs) is seen as a step to make such trusts play a bigger role in the real estate sector.
SEBI has allowed these funds to invest higher share (20 per cent) of their corpus in under-construction real estate projects.
This in turn may help projects stuck for dearth of funds to begin again and also lead to higher returns for investors.
The market regulator is also proposing to change the number of sponsors, which is fixed at three now, rationalisation of compliance with respect to related party transactions (RPTs) requirements, aligning minimum public holding requirement with Securities Contracts (Regukation) Rules.
REITs are listed entities that invest mainly in leased office and re tail assets and distribute most of their income among the shareholders as dividends. It gives developers a new avenue to raise funds by allowing them to sell finished commercial buildings to investors and list them as a trust. According to one report, approximately 315 million sq ft of office inventory is eligible for REIT across the cities. The REIT-eligible inventory includes existing non-strata sold Grade A inventory, wherein Bengaluru, Mumbai and Delhi-NCR cumulatively account for over 67 per cent.
SEBI also said that it would remove the restriction on the special purpose vehicles (SPVs), which are holding companies, to invest in other SPVs holding the real estate assets.
Industry experts say the changed rules could make REITs more attractive to investors and real estate players.
Anshuman Magazine, chairman and MD, CBRE South Asia Pvt Ltd. says, “The various relaxations in these rules for REIT will provide more prospects for real estate development while paving the way for potential investment into newer, under-construction assets. This is a step in the right direction towards boosting the real estate industry in the country.“
Manoj Gaur, MD, Gaursons India Ltd, says, “Indian realty sector is pretty much starving and REIT will here provide a much-needed alternate route of fund raising and attract several small and medium level investors in the sector. With plans to upgrade Indian infrastructure already laid, REITs might serve as a chief instrument in years to come. Therefore, the realty fraternity definitely welcomes this step and hopes that it will boost the sector's pace in near future.“
The market regulator's nod for higher number of sponsors for a REIT would allow more sponsors to pull their assets to from a trust where investors could invest.
“Allowing more sponsors would attract even smaller players with quality assets to come in as sponsors,“ Shah said. From a maximum of three sponsors now, the number is likely to be increased to five, industry players said.
Sebi's willingness to allow intermediate SPVs could lead to cost savings for REITs, industry players said.This may also allow REITs to have more assets under it without going for complex restructuring.
Aman Singh Gehlot, director, Ambience Group, says, “The easing of investment rules for REITs in under construction projects is a positive move, which will help developers monetise their projects even at development stage. The decision to raise investment limit to 20 per cent from the current 10 per cent in under construction projects will result in host of benefits including assured line of funding, creation of an alternate option to banks, enhance transparency, improve confidence of both developers and investors and importantly, ensure timely completion and delivery of projects.“