New norms may drive launch of REITs

With market regulator SEBI permitting single-asset real estate investment trusts (REITs), fence-sitting developers, enthused by the tweaked norms, may opt for REITs soon.

Even as SEBI continues to make amendments to make investments in REITs attractive, developers on their part are focussing more on acquiring and developing commercial properties to create assets for REITs.

“SEBI has permitted single-asset REITs as against the earlier requirement of investing in at least two properties, with no more than 60 per cent of the total asset value invested in one property,” Shubham Jain, VP & Sector Head, Corporate Ratings, said.

“This change could enable a larger pool of developers to access the REIT market; nonetheless, the market appetite for such single-asset offerings remains to be seen, given that one of the key benefits expected of the REITs is the diversification of underlying assets and cash flows,” Jain added.

Two days ago, SEBI tweaked norms governing REITs and infrastructure investment trusts (InvITs), allowing them to raise funds through debt securities and permitting even single-asset REITs. Under the current norms, REITs were required to have at least two projects under them.

The government had given its nod to REITs as far back as in 2014, but the first REIT is yet to take shape. Embassy Office Parks had last year registered the first REIT. Two InviTs, namely IRB InvIT Fund and Indiagrid Trust, have so far been listed.

Bhairav Dalal, Partner for Real Estate Tax, PwC, said, “The proposal to permit a single-asset REIT should enable single-asset owners (of large value) to explore this product.” According to sector analysts, several developers are sitting on such inventory.

Developers, on their part, are finding commercial projects lucrative as the sluggishness in residential real estate continues.

Players such as Ascendas-Singbridge Group and Singapore’s sovereign wealth fund GIC too are focussing on commercial projects. The two entities recently acquired a 16-acre land parcel in Pune and plan to develop it into an IT SEZ.

Santhosh Kumar, CEO-Operations & International Director, JLL India, had said, “As the Real Estate Regulation & Development Act (RERA) kicks in, many developers are now shifting their strategy towards building more office projects. Also, with REITs set to launch in India this year, developers realise that this asset class can continue to give them better dividends in the future, and that they can count on capital value appreciation when they exit.”

A JLL report also noted that close to 283 million sqft of office space in India is ‘REITable’. Currently, there are 901 REIT-worthy properties in India.

The report said: “Given the currently sluggish demand for residential real estate in India, the office sector provides some relief for real estate developers, given the declining vacancy levels and improving rents. With declining vacancies, superior quality buildings in central business districts, secondary business districts and peripheral business districts are likely to see maximum REITable assets.”

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