Mumbai, Aug. 10: The Securities and Exchange Board of India (Sebi) today paved the way for more fund inflows into real estate and infrastructure as it cleared new norms for the setting up and listing of investment trusts in these two sectors.
The norms were cleared by the Sebi board at a meeting in New Delhi today, which was also addressed by finance minister Arun Jaitley.
Today’s approval takes forward Jaitley’s proposal in the budget presented last month, where he announced tax incentives for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
The new norms will enable the listing and trading of REITs and InvITs as any other security on the stock exchanges and help create new platforms for raising of funds by real estate and infrastructure companies. These new investment avenues will reduce the pressure on the banking system while making available fresh equity in the form of long-term finance from foreign and domestic sources.
Experts estimate real estate trusts to attract funds worth $8-10 billion.
REITs are similar to mutual funds. They collect money from investors and put them in real estate assets, including commercial projects such as office buildings, malls, hotels and housing complexes.
Investors in REIT earn through both dividend and wealth accumulation (capital appreciation of the underlying property). The rent collected from a property is paid to investors as dividend.
However, small investors would have to wait for some time before they are allowed to invest in these products as the minimum investment amount for REITs has been fixed at Rs 2 lakh and at Rs 10 lakh for InvITs, given the complex nature and potential risks associated with them.
InvITs are expected to create investment avenues to fund the country’s huge infrastructure requirements over the next few years.
Draft guidelines for both REITs and InvITs were earlier put in public domain by Sebi for comments. Sebi chairman U. K. Sinha said the regulator decided to reduce the minimum asset size for REITs to Rs 500 crore from Rs 1000 crore, according to the demand of the industry. While multiple sponsors have also been allowed, the minimum initial offer size has been kept at Rs 250 crore with a minimum public float of 25 per cent.
Further, the sponsors must have a mandatory holding of 25 per cent in REIT units for three years and continuous holding of 15 per cent thereafter. Multiple sponsors will be allowed to hold the mandatory holding together.
According to the Sebi norms, an InvIT will have to be set up as a trust and registered with the market regulator. It shall have entities such as trustees, sponsors, investment managers and project managers. InvITs shall invest in infrastructure projects, either directly or through special purpose vehicles (SPVs). For public-private projects, such investments shall only be through SPVs.
In his first interaction with the Sebi board after assuming charge as finance minister in May, Jaitley asked the regulator to be vigilant about violations in the marketplace and suggested more measures to attract retail investors and address their grievances.
The Sebi chief indicated that certain changes or amendments and additional guidelines would be required for the development of REITs and InvITs in India. These include allowing foreign investment into the units of REITs and InvITs at the time of IPO and for acquisition from secondary markets.
Changes are also necessary to let insurance companies, pension funds and provident funds to invest in these products.