Sarah Ann Cherian
Sebi has recently come out with a draft proposal to permit Real Estate Investment Trusts (REITS) in India. As the real estate sector is undergoing a tremendous boom, growing at 30% per annum, this will be a great investment avenue for investors. REITS operate like a mutual fund, where the collective pool of investor’s money is invested in real estate, rather than in the equity or debt markets. There are basically three type of REITS; Equity, Mortgage, and Hybrid. Equity REITs own properties and collect revenue primarily from rent. Mortgage REITs invest in mortgages by loaning money to those who are purchasing buildings; and Hybrid REITs do a combination of both.
Even though REITS is a new concept in India, it is already popular in developed economies such as US, UK, Australia and Japan. REITS were first created by the US Congress in 1960. Currently in the US there are over 300 publicly traded REITS whose assets have reached over USD 260 million.
According to the Sebi’s draft proposal, only Equity REITS will be launched in India. REITS will not invest in vacant land or residential property, but only in commercial property such as shopping centers, office buildings, cinema and malls, which will provide them with a rental income. The other proposals put forth by Sebi are; REITS should be in the form of a trust, created under the India Trust Act regulated by Sebi. The trustees should be scheduled bank, trust company of a scheduled bank, public financial institution, insurance company or a corporate body. All REITS launched should appoint a property valuer who will value the real estate under the scheme. None of theirs schemes should have more than 15% exposure to a single property. None of their schemes should have more than 25% exposure to real estate projects developed, marketed, owned or financed by a single group of companies. And lastly, all schemes will be closed ended and list on stock exchanges.
There are many advantages of introducing REITS in India, for both retail investors and the real estate sector at large. As capital investment in the real estate sector is large, investment in this sector is next to impossible for the aam admi. Therefore, REITS will offer an option for retail investors to trade in real estate. As REITS will be listed and traded on the stock exchange there will be a high degree of liquidity. REITS also provide diversity to an investor’s portfolio, as stock market fluctuations do not affect this form of investment. Further, REITS will not only provide the real estate sector a boost, but will also provide a route of raising more money for the real estate business.
As mentioned earlier, real estate sector is undergoing a tremendous boom. The prospect for the sector in India looks buoyant. In a scenario where investors are looking for alternate forms of investment owing to the volatility of markets in the recent past, one can definitely look at investing in REITS.
sarahsc@dbschola.murugappa.com
No comments:
Post a Comment