MUMBAI: With investor sentiment waning and the rupee plunging to new lows everyday, there is an urgent need for implementing the real estate investment trusts (REITs) to ensure more liquidity in the sector, say experts.
The government and market watchdog Sebi are actively working on a regulatory framework for REITs -- an asset class that buys income generating real estate assets and passes on the yield to investors.
"The finance ministry and Sebi are working actively on its implementation. If implemented, we believe it will encourage both foreign and domestic investors to invest in the real estate sector," National Real Estate Development Council Vice-President Sunil Mantri said at an industry summit over the weekend here.
According to Mantri, the sector can attract investments worth USD 10 billion in the next thee-four years after its implementation. "In the present scenario, if the sector has to bounce back from the lows, there is a need to bring in such a mechanism," he said.
If implemented, it will be very positive for the real estate sector, attracting long-term and low-cost capital to India, PWC associate director Bhairav Dalal said.
"We hope REITs is implemented soon. It will definitely give a boost to rental assets. It will act as an alternate source of funds for the developers as well," he said.
However, he observed that the fund will not help in addressing the issue of non-availability of housing stock.
"Though it will help in bringing liquidity in the sector, the REITs will not help developers who plan to develop residential projects. Also, developers who plan to undertake new projects, will not be able to get any benefit out of it in the initial stage," he said.
Property consultancy firm Jones Lang LaSalle managing director for capital markets, Shobhit Agarwal too said REITs will not be the right answer to address liquidity issues.
"REITs model, adapted to the existing mutual funds platform, do not seem to be the right answer. While everybody is working on entry and creating assets, the important question of who will buy these assets to provide an exit to the developers/investors needs to be addressed," he said.
Agarwal further said FDI is clearly the only life-saver, which the real estate sector can look up to.
"With all these routes being plugged because of the risk involved, FDI is clearly the only life-saver which the real estate sector can look up to.
"However, the ever-changing policies on FDI, taxation and development, coupled with a lack in transparency in the system and a high amount of friction in approval mechanisms, have led to an uncertainty in yields and tenure of lock-in for investments in real estate," he added.