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RBI nod for banks to invest in REITs hailed

Our bureaus Mumbai/Bengaluru | Updated on January 15, 2018 Published on April 06, 2017

Will provide liquidity, additional assets for banks, say analysts

Real estate developers on Thursday said the RBI’s proposal to allow banks to invest in REITs would usher in a large number of listings in the country. As of now, no real estate player has floated a REIT though companies such as DLF and Blackstone have been talking about it.

The RBI move comes after a SEBI proposal requested the banking regulator to allow banks to participate in these schemes.

Rajeev Talwar, Chairman, Naredco, and CEO DLF said, “The RBI’s decision to allow banks to invest in REITs within the overall umbrella of 20 per cent of their net owned funds is a huge positive. This step now has the potential to usher in large number of REIT listings in India by offering a safe asset class to invest in and also provide competition to foreign institutions. For banks, it offers an additional important asset class for investing. For commercial real estate companies, once REITs pick up, it will bring liquidity, and free up capital that will help lower the overall costs.”

REITs are instruments which allow owners of rent-yielding assets (commercial and retail) to raise money from investors by pooling and listing them as a trust.

Dip in capital cost likely

Surendra Hiranandani, Chairman & MD, House of Hiranandani , said, “It will allow banks to invest in an important asset class, thereby providing much-needed boost to this segment. Owing to better liquidity, the cost of capital for developers in the commercial segment will come down in the future.” Currently, banks are allowed to invest in equity-linked mutual funds, venture capital funds (VCFs) and equities to the extent of 20 per cent of their net-owned funds.

“It is proposed to allow banks to invest in REITS and InvITs within this umbrella limit (20 per cent of their net-owned funds),” RBI said in a statement.

Sachin Sandhir, MD - Emerging Business, RICS, said: “It will set the momentum going for REITs.”

Will bring sanctity

On the RBI’s move, the BSE Brokers Forum said: “The RBI’s decision to allow banks to invest in REITs and InvITs will bring sanctity to these instruments from a retail investor’s perspective and the latter will find the confidence to invest in such trusts in sync with mutual funds as an investment class. Apart from banks’ participation seen by retail investors as a safe due diligence for investment in such trusts, these instruments, in turn, will revive the beleaguered real estate and infrastructure companies and provide much-needed relief to the commercial real estate sector that is facing liquidity crunch and delay in completion of existing projects.”

“Moreover, InvITS will also bring in retail investors and offer them the opportunity to earn regular returns as is the case with corporate bonds and fixed deposits with the added possibility of an upside on equity (capital gains), unlike tax deducted at source in case of fixed deposits and bonds,” said Kamlesh Shroff, spokesperson of the BSE Brokers Forum.

Ranjeet Mudholkar, Vice-Chairman & CEO, FPSB India, said the RBI’s announcement is positive for both banks and real estate developers. “As for the banks, it offers an additional important asset class for investment and brings liquidity, while it enhances liquidity for the real estate firms, thus freeing up capital and lowering the cost of capital,” he added.

Greater participation

“This is a positive move by the RBI that will allow greater institutional participation in the real estate sector. Banks will now have a route to investment in real estate, in turn, helping the liquidity within the sector,” said Anshul Jain, Managing Director - India, Cushman & Wakefield.

“As a key takeaway for the sector, RBI and SEBI have shown faith in real estate investment foreseeing positive and secured returns in the mid- to long-term on account of steady economic growth. This announcement can be viewed as a sign of maturity and a step towards institutionalisation of real estate in India,” he added.

Published on April 06, 2017

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