With an aim to lure investments to the country’s dwindling realty sector, market watchdog Securities and Exchange Board of India (SEBI) has issued draft guidelines to set up Real Estate Investment Trusts (REITs) in India, which could open up new funding channels for real estate assets in the country. However, the regulator, in its draft note for a separate regulatory framework has allowed REITs only for large assets.
As per the draft guidelines, all the REIT Schemes will be close-ended real estate investment schemes that will invest in real estate, whose returns will be derived mainly from rental income or capital gains from real estate. The objective of REITs, to be registered as trusts with SEBI, will be to organize, operate and manage real estate collective investments.
Further, as per the proposal, A REIT will be first set up as trusts which will have trustees, sponsors, managers and a principal valuer. The trust, once formed, will initially apply for a SEBI registration and only after getting approval, will be allowed to offer units to the public and get the units listed, similar to initial public offering (IPOs) of equity shares, albeit in a different structure.
However, only those companies can come with IPO, whose assets size under the REIT is not less than Rs 1,000 crore ($160 million). Further, SEBI has called for a minimum initial offer size of Rs 250 crore and minimum public float of 25% to ensure adequate public participation and float in the units. Consequently, it is proposed that the minimum subscription and unit size would be Rs 2 lakh and Rs 1 lakh respectively.
The total REIT market size in the Asia-Pacific region is approximately $205 billion but India, so far has been unable to take advantage of this funding opportunity, mainly because of the lack of an existing regulatory framework. The country back in 2008 too, issued draft regulations for REITs, but they were withdrawn in favour of allowing asset management firms to launch real estate mutual funds, with that initiative failing too.
As per the draft guidelines, all the REIT Schemes will be close-ended real estate investment schemes that will invest in real estate, whose returns will be derived mainly from rental income or capital gains from real estate. The objective of REITs, to be registered as trusts with SEBI, will be to organize, operate and manage real estate collective investments.
Further, as per the proposal, A REIT will be first set up as trusts which will have trustees, sponsors, managers and a principal valuer. The trust, once formed, will initially apply for a SEBI registration and only after getting approval, will be allowed to offer units to the public and get the units listed, similar to initial public offering (IPOs) of equity shares, albeit in a different structure.
However, only those companies can come with IPO, whose assets size under the REIT is not less than Rs 1,000 crore ($160 million). Further, SEBI has called for a minimum initial offer size of Rs 250 crore and minimum public float of 25% to ensure adequate public participation and float in the units. Consequently, it is proposed that the minimum subscription and unit size would be Rs 2 lakh and Rs 1 lakh respectively.
The total REIT market size in the Asia-Pacific region is approximately $205 billion but India, so far has been unable to take advantage of this funding opportunity, mainly because of the lack of an existing regulatory framework. The country back in 2008 too, issued draft regulations for REITs, but they were withdrawn in favour of allowing asset management firms to launch real estate mutual funds, with that initiative failing too.
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