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Market is abuzz with reports that Securities and Exchange Board of India (SEBI) plans to allow “micro” real estate investment trusts (REITs).
A Reuters report quoting a senior official said the market regulator plans to reduce the size of REITs, allowing them to hold just a single asset or a diversified portfolio, to increase supply and flexibility for investors.
The aim is to bring a wider set of property companies to the nascent market as India emerges from a pandemic-induced lull.
The market regulator has been burning midnight oil to make REIT popular among retail investors for inclusive growth.
REITs collect money from a pool of investors and invest in a portfolio of real estate assets, generate a regular income (through rental) and also offer the possibility of capital appreciation.
SEBI, last year, made some sweeping changes to bring them within the reach of a larger set of investors. It reduced the minimum application amount in a REIT from ₹50,000 to ₹10,000-15,000 and the trading lot size of REITs from around 200 units to just one unit.
On its part, the National Stock Exchange also tweaked rules to accommodate REITs/InVITs in its indices. Brookfield India Real Estate Trust, Embassy Office Parks REIT and Mindspace Business Parks REIT were part of Nifty 500 index, while Nifty Midcap 150, Nifty Smallcap 250, NIfty LargeMidCap 250, Nifty MidSmallCap 400 and Nifty Realty too featured REITs.
When SEBI first allowed REITs in 2014, the rules were stringent and restrictive for both sponsors and investors. But since then, it has relaxed rules to accommodate more sponsors and investors.
Despite that, only three players — Embassy Office Parks, Mindspace Business Parks and Brookfield India Real Estate Trust — entered the market. Since February 2021, no company has filed papers with SEBI to launch REIT. These are abysmally poor numbers when compared with developed markets like the US.
Lack of awareness
One of the major reasons for the lackadaisical attitude was the performance of listed players and lack of awareness about the product.
The annualised return given by REIT is less than 3 per cent for Embassy Office Parks since its listing in April 2019. MindSpace Business Parks and Brookfield India REIT were better at over 7 per cent and 10 per cent, respectively. However, if one were to consider the dividend payouts by these players, the return would have been decent.
Ideally, REITs should have emerged as a strong investment alternative or diversification for investors to stay away from market volatility. But the product was not marketed well either by the listed players or by the industry.
Besides, structural problems in the real estate sector such as lack of transparency and registration process seemed to have impacted investor sentiment. With the Government boosting transparency through the Real Estate (Regulation And Development) Act or RERA, the situation on the ground should see an improvement going forward.
From this perspective, SEBI’s new initiatives, however small, should be a welcome one. May be, it’s time for major real estate players to seriously contemplate this avenue for fund raising, benefitting all stakeholders.
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