Investment boost for real estate:-
At a time when the real estate sector is reeling under liquidity crunch and poor sales, the Securities and Exchange Board of India (Sebi) has re-initiated the process of introducing real estate investment trusts (Reits) in the country. Sebi recently released a consultative paper and the proposed Sebi (Real Estate Investment Trusts) Regulations for comments. The markets regulator had earlier planned to introduce Reits in 2008.
According to the proposed regulations, Reits will be registered as trusts with Sebi. These trusts will not be allowed to launch any scheme. Reits, which will raise funds through initial offers, will have to list their units on exchanges for trade. They will be allowed to raise additional funds through follow-on offers as well.
To ensure that only established players launch Reits, the minimum size of assets under management has been proposed as Rs 1,000 crore. Initially, the minimum investment size be Rs 2 lakh, which may keep retail investors away from this new market. At least 90% value of Reit assets should be in ready properties generating revenue. The remaining 10% can be in other specified assets. Reits will have to distribute at least 90% of their net distributable income after tax to investors.
Vacant and agricultural lands are proposed to be kept out of the reach of Reits, which will invest only in Indian assets. The draft regulations include several conditions that Reits will have to follow. Assets held by Reits will have to be valued, including through physical inspection of the properties at least once a year. The value will have to be updated every six months and the net asset value (NAV)declared at least twice a year.
"The decision to allow listing of Reits in India as an investment product will boost the liquidity situation of cash-starved developers, which are struggling to find funds for their construction activities. This will also boost the subdued investor sentiment in the country," says Sachin Sandhir, managing director, RICS (Royal Institute of Chartered Surveyors) South Asia.
According to the proposed regulations, Reits will be registered as trusts with Sebi. These trusts will not be allowed to launch any scheme. Reits, which will raise funds through initial offers, will have to list their units on exchanges for trade. They will be allowed to raise additional funds through follow-on offers as well.
To ensure that only established players launch Reits, the minimum size of assets under management has been proposed as Rs 1,000 crore. Initially, the minimum investment size be Rs 2 lakh, which may keep retail investors away from this new market. At least 90% value of Reit assets should be in ready properties generating revenue. The remaining 10% can be in other specified assets. Reits will have to distribute at least 90% of their net distributable income after tax to investors.
Vacant and agricultural lands are proposed to be kept out of the reach of Reits, which will invest only in Indian assets. The draft regulations include several conditions that Reits will have to follow. Assets held by Reits will have to be valued, including through physical inspection of the properties at least once a year. The value will have to be updated every six months and the net asset value (NAV)declared at least twice a year.
"The decision to allow listing of Reits in India as an investment product will boost the liquidity situation of cash-starved developers, which are struggling to find funds for their construction activities. This will also boost the subdued investor sentiment in the country," says Sachin Sandhir, managing director, RICS (Royal Institute of Chartered Surveyors) South Asia.
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