Sebi to permit REITs in India, issues draft guidelines

After having shelved the initial guidelines for REITs in 2008, the markets watchdog has decided to revive the plan in a bid to save the ailing real estate sector

GN Bureau | October 11, 2013



India’s real estate sector is neck deep in crisis with delays in completion of projects, demand having slowed down and interest rates remaining high. In order to add depth to the country’s real estate market, the securities and exchange bureau of India (Sebi) is looking to permit real estate investment trusts (REITs). The move is aimed at attracting money into the sector which has been experiencing a liquidity crunch for some time now.

After having shelved the initial guidelines for REITs in 2008, the markets watchdog has decided to revive the plan as it released a consultative paper, on Thursday, inviting comments from the public by October 31.

REITs sell like stocks on major exchanges and invest directly in completed real estate projects instead of those projects under-construction. In this way, investors can earn regular income through the rent received from the properties.

According to the consultative paper released by Sebi, REITs are a win-win for both real estate developers and investors. "On one hand, REITs provide the investors with an investment avenue, which is comparatively less risky than investing in under-construction properties and provides regular income. On the other hand, REITs provide the sponsor (usually a developer or a private equity fund) avenues of exit thus providing liquidity and enable them to invest in other projects," it said in the paper.

Besides other factors, Sebi also said that REITs bring in transparency and accountability in the real estate sector thus making it a popular choice across the globe.

Explaining the entire framework, the regulator has pointed that REITs will be set up as trusts and cannot launch any schemes.  Upon being registered with Sebi, REITs may go in for an initial public offer (IPO) of minimum Rs 250 crore. Once listed with a stock exchange, it can go in for follow-on public offers (FPOs), Sebi said.

The markets watchdog is likely to announce formal guidelines for REITs after taking into account the feedback it receives from the public.
 

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