MUMBAI: Real Estate Investment Trust (REIT) will be registered as a trust with SEBI and provide financing and exit options both for the investors as well as developers.
The real estate sector, though still to achieve the status of an industry, has been occupying significant advancement during the last ten years. Rising slow but steady demand for the properties in all segments, treating the segments as an investment option with good returns and increasing commercial and business activities have boosted the sentiments among realty players all inclusively.
REIT is such an instrument to provide a systematic and institutional financing option for the sector. The REIT is to be set up with the objectives of organizing, operating and managing the collective investments in the Indian real estate sector. REIT, as per the latest consultation paper issued by SEBI, will be registered as a trust with SEBI and provide financing and exit options both for the investors as well as developers, builders and others.
Financing through REITs is actually a globally accepted phenomenon and the methodology is to orient investment in completed and revenue wise promising real estate projects and provide substantive proportionate returns to the investors. Literally, it is an option that streamlines the alternative investment options for the real estate sector and provides a return to the investors. Returns under the REITs come from the rentals of the properties.
REITs may prove to be a good option for the investors as they get less risky avenue with the scope of good returns. However, initially the big or mid-level investors may be allowed to allocate their investments in REITs and retail investors may be kept out of it.
India has miniscule contribution, only 1.3 per cent, to the real estate industry in Asia. It means there is huge scope of such instruments and will prove to be measured step to protect the growth of the real estate sector from the adverse impacts of the interest rates and burdensome financial realty.
As per the SEBI’s proposal, after the establishment of REIT, largest realty companies will be allowed to register with it and allows them to issue public offerings to get funding for their projects completed on providing good returns. The proposal limits the minimum value for listing with REIT will be Rs 1,000 crore and the public float 2 per cent. All transactions on REITs will be only after the two different valuations done by valuators designated by the trust.
REIT seems a good option to get a systematic financing option for the real estate sector initially. As the larger scope of real estate sector in India is wide, importance of REIT is also high. Now, it is the government to let not any move unperceived to make it successful.