REIT: Boon or bane for the Indian realty market
Nov 18, 2013
Source : The Times of India

 

MUMBAI: REIT or Real Estate Investment Trust is a pooled investment instrument, like a mutual fund. While mutual funds invest primarily in debt, equity and money markets, REITs invest in real estate projects which are usually completed and are commercial in nature. The market regulator, Securities and Exchange Board of India (SEBI) has recently issued a consultation paper on the draft regulations for REITs. The instrument that is popular in several global capital markets may soon start operating in India as well. This is a much awaited move that is likely to be beneficial for real estate developers and investors alike.

REITs are going to prove to be a boon for the real estate sector in India that is suffering from a liquidity crunch and poor sales. They will allow developers in the commercial real estate space to unlock the value of their assets. Several real estate developers are at present faced with liquidity issues as they have large amounts of capital locked in commercial assets and are finding it difficult to sell these due to the large ticket sizes. REITs will ease this hassle. The move is also likely to bring in more regulation and globally-accepted real estate practices into the sector thereby reviving the interest of both domestic and foreign players in this space. There is likely to be more professional management of finances and investment in real estate of the country once REITs are introduced. REITs will also reduce the risk exposure of banks that have invested large amounts of capital in under-construction commercial projects.

There are several other proposals in the paper by SEBI which will all work towards ensuring more formalisation and clarity in the way the investment process in the sector works. For instance, it will be made mandatory for a REIT to have trustees, sponsors, managers and a principal valuer. The trust will have to apply for a registration with SEBI and once the market regulator grants the approval, only then will the trust be able to offer units to the public and get the units listed.To ensure that the investment is as safe as possible for investors, a REIT will be permitted to invest its entire corpus in one project only if the size of the asset is at least Rs.1,000 crore. The net asset value (NAV) of properties in which these instruments will invest will be examined twice a year by two independent valuations as per the consultative paper. This will ensure greater transparency and uniform valuation in this sector, enhancing the trust of potential buyers and investors.

The introduction of REITs will also provide a boost to the subdued investor sentiment in the economy. REITs enable investors to take advantage of appreciation of real estate without the hassle of buying and maintaining physical properties themselves. Investors are likely to take very favourably to REITs as these will also allow them to diversify their portfolio in a way that very few other options can. The low entry barrier, with a minimum unit size of Rs 1 lakh and minimum subscription size of Rs 2 lakh will be one of the main factors motivating investors. As per the proposal, initially only wealthy individuals and institutions will be allowed to subscribe to REIT unit offers but this benchmark is expected to be lowered gradually allowing retail investors to participate as well.

Many investors, who lack deep pockets, often do not have the ability to partake in asset allocation and balance their investments across asset classes in the realty segment. The introduction of REITs will allow them to do so. Another advantage that REITs will offer is that of mitigated risks as these instruments will primarily invest in completed projects. Thus, the risk associated with completion of under-construction projects that an investor in real estate is most often exposed to, gets reduced by a huge margin.

Another factor making REITs attractive to investors is the return on investments that unit holders will receive. The returns will be derived mainly from rental income or capital gains from real estate. The SEBI chief UK Sinha has also emphasised that he will ensure that these instruments are made tax-effiecient, offering another added benefit to the investment sentiment of the country.

All the above factors will make the entry of REITs into the capital market an advantageous move for both investors and the real estate sector. Investors will profit from the unique benefits that these instruments offer in terms of deriving value from appreciation of real estate and a diversified portfolio. The real estate sector will be given a boost in terms of capital inflows and a renewed investor confidence.

Latest Realty News

Blackstone to buy Mumbai's iconic Express Towers with Panchshil Realty for Rs 900 crore
Nov 19, 2013
MUMBAI: Express Towers, an iconic commercial building in South Mumbai's Nariman Point, is all set to get a new owner.
The future of prefabricated housing in Tamil Nadu
Nov 18, 2013
CHENNAI: Pre-cast houses? Need not be outlandish for the home-aspiring Tamilian who for all the right reasons associates a home with attributes such as ‘solidity’ and ‘permanence’. A home is a place where you ‘settle down’. A house is an asset for future generations. And a home is a place that can offer the ultimate security. So, will the concept of modular or prefabricated homes ever find even a niche in the Tamilian mindset? YES, feels Pon Ravichandran.
Noida Extension: the real estate hot spot
Nov 18, 2013
DELHI: Noida Extension a 4,000-acre land chunk, with Ghaziabad, the Hindon River and a few sectors of Greater Noida around its boundaries, is today buzzing with activity as almost 75 real estate developers are ready with a slew of projects offering 1/2/3 BHK housing properties at affordable rates.
Top realty firms like DLF, Oberoi Realty see sales fall 40-70% in Sept quarter
Nov 18, 2013
DELHI/MUMBAI: India's top listed real estate firms have reported a sharp drop in sales in the quarter to September as high prices and continued economic uncertainty kept home buyers away.
Kaushalya Infrastructure, subsidiary get Rs 138-cr order
Nov 17, 2013
DELHI: Kaushalya InfrastructureBSE 4.86 % today said it has received orders worth Rs 138.39 crore along with its subsidiary for constructing two residential projects in Rajasthan.
Seashore money invested in Govt projects: BJP
Nov 16, 2013
BHUBANESWAR: The deposited money with the Seashore Group by the investors has been used in many public projects by the Government illegally against the interest of the depositors. In a joint venture with the Government, the money was invested in the OTDC and health projects of the State. Besides, a major portion has been spent in the beautification of river bank of Cuttack, alleged State BJP spokesperson Sameer Mohanty in a Press release here, asking if the money could be returned to the investo
New airport: Plan B ready, says Chavan
Nov 16, 2013
MUMBAI: Even as the Prime Minister has given the go ahead for the Navi Mumbai airport in the face of opposition from certain villages, the Maharashtra Government is already working on an alternative plan for a new airport in the city to be built over reclaimed land.
BMC, Mhada must act responsibly, says Court
Nov 16, 2013
MUMBAI: Voicing concern over increasing number of building collapse incidents in the city during the last one year, the Bombay High Court observed that authorities like the municipal corporation and Mhada must act in a more responsible manner rather than shifting blame on each other.
‘Not enough policy support for real estate’
Nov 16, 2013
CHENNAI: The real estate sector is not getting adequate support from banks and policy makers despite its contribution to economic growth, according to Lalit Kumar Jain, Chairman, Confederation of Real Estate Developers Association of India (CREDAI).
Curbs on land registry in 42 villages in NCR
Nov 16, 2013
DELHI: The district administration has been told not to register land in 42 villages, including some located in Pataudi, where illegal colonies have sprung up in violation of the Directorate of Town and Country Planning (DTCP) regulations.

Latest Realty News Of State

Realty Talk's