Mumbai, Oct. 10: The Securities and Exchange Board of India (Sebi) today put out draft guidelines to set up real estate investment trusts (REITs) in India, reviving an effort that it had put on hold in 2008 during the global financial crisis.
The move is designed to open up a new funding avenue for the real estate sector.
REITs are similar to mutual funds in that they collect money from investors and put them into real estate assets that may comprise commercial projects such as office buildings, malls and housing complexes. Investors in REIT earn on account of both dividend (from the rent collected) and wealth accumulation (capital appreciation of the underlying property).
The consultative paper said retail investors would not be allowed to invest in this new instrument initially.
The REITs will be allowed to raise funds from any investor, resident or foreign. Until, the market develops, units of the REITs will be offered only to high net worth individuals (HNIs) or institutions. For this purpose, the minimum subscription size of these units has been kept at Rs 2 lakh and the unit size at Rs 1 lakh.
While REITs will be set up as trusts under provisions of the Indian Trust Act, 1882, such a trust should initially apply for registration with Sebi. The trusts can raise money by floating units only after they obtain registration.
Moreover, a REIT will have trustees, sponsor, manager and a principal valuer.
According to the draft suggestions, the REIT will have to raise funds initially through an initial offer. The units of the REIT will have to be listed on the bourses. Later, they can raise additional funds through follow-on offers.
Sebi stipulated that for coming out with an initial offer, the size of the assets under the REIT would have to be worth at least Rs 1,000 crore. This is to ensure that initially only large assets and established players enter the market.
Further, the minimum offer size has to be Rs 250 crore and there should be a minimum public float of 25 per cent so as to ensure adequate public participation and float in the units.
According to property consultant Knight Frank India, real estate is facing challenges to raise money and REITs could not only address this problem but also solve the housing shortage in the country.
Sebi’s move was welcomed by experts in the sector.
“Once in place it will provide an additional exit route for investors and enable retail money to be channelled 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,” said Anshuman Magazine, chairman & managing director at CBRE South Asia Pvt Ltd, the commercial real estate services and investment firm.