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REITs could finally become a reality with SEBI proposing to relax its guidelines. Two years after the government announced REIT as a mode of fund-raising, the instrument is yet to become a reality.
SEBI’s proposed changes include allowing a larger number of sponsors and removing the investment restrictions on special purpose vehicles. Currently, SEBI regulations allow for only three sponsors.
Risk quotient rises“In the previous two budgets the government has removed all the bottlenecks for listing of REITs. Also, taxation rules were tweaked to ensure foreign investor participation in REITs. Still there has been no REIT listing in India. The primary reason for this is buyer-seller expectation mismatch on yield.
“By allowing 20 per cent investment in under-construction projects (up from 10 earlier), the higher returns from under-construction projects will enhance the overall return on the REIT. But this will also increase the risk profile of the product,” Sharad Mittal, Director, Head — Real Estate Fund Motilal Oswal Real Estate Investment Advisors told BusinessLine .
According to industry estimates, REIT can generate investment to the tune of $20 billion. Industry watchers point that for REITs to be attractive, the returns from REITs must be higher than FD rates. Currently, its yields are not as attractive, they say.
Improvement in capital flowVineet Relia, MD, SARE Homes, “The Indian real estate sector is going through a cash crunch and SEBI’s decision will help increase flow of capital in this industry. It will make REIT a viable product for investors and a fund-raising instrument for real estate players. The decision will also help in attracting small investors to become a part of the real estate growth.”
Several real estate players such as Unitech, DLF, Embassy, Prestige, Supertech and Blackstone are among those who had evinced interest in REIT listings.
According to a RICS and Cushman and Wakefield report, Indian commercial real estate offers investment opportunity worth $43-54 billion across the top eight cities via REIT-eligible ready stocks.
Sachin Sandhir, Global MD, Emerging Business, RICS, said in a statement, “There is also likely to be considerable international investor interest in income-yielding assets and the first REITs and InvIts are not far away,”
According to Jones Lang LaSalle, 80-100 million sq ft of office space worth at least ₹60,000 crore may qualify to be included under REITs. These assets could together generate rentals of ₹6,000 crore annually.
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