The real estate sector in India is upbeat as the Securities and Exchange Board of India (SEBI) on Sunday approved the setting up of real estate investment trusts (REITs) sending clear signals of recovery and hope to the industry.
REITs are listed entities that mainly invest in real estate assets, which produce income regularly and the earnings are distributed to the shareholders. The REITs will come under special tax segment.
The SEBI said REITs should operate with an asset pool of at least Rs. 5 billion ($81.78 million) and have an initial issue size of at least Rs. 2.5 billion for shareholders. These REITs will be allowed to invest only in commercial properties.
The regulator also approved allowing infrastructure investment trusts on similar model that would allow developers to monetize their infrastructure assets through a stock exchange listing.
Welcoming the move, Anuj Puri, Chairman & Country Head of JLL India, said: “This is a big change from the ambiguity and uncertainty that prevailed about this very important instrument in previous years. It is gratifying to note that SEBI fully intends to deliver on its assurances of bringing better and faster funding into Indian real estate.”
He was sure that further clarity about taxation eligibility norms will be forthcoming before the first listing goes up, which in turn would increase the interest from foreign investors.
In fact, SEBI had announced REITs plan last October, but delayed amid uncertainty about the taxation structure for it. In his budget address last month, Finance Minister Arun Jaitley cleared the way for REITs and infrastructure trusts by announcing tax benefits for both.
The regulator SEBI will simplify registration for stock brokers and clearing members, allowing them to obtain a unified registration for doing business in all the stock exchanges and depositories.
Currently, Grade A office space in the top seven cities of India amounts to around 376 million square feet, and the industry expects that approximately 50% of this space will get listed in next 2–3 years.
The valuation of these assets is around $10-12 billion, and this accounts for a fairly massive influx of funding waiting in the wings to hit the Indian real estate market via REITs over the next few years, said Puri.