The Securities and Exchange Board of India (Sebi), the country’s market regulator, yesterday approved the setting-up of real estate investment trusts (Reits), which could potentially tap a market worth US$20 billion.
The announcement comes just a month after the finance minister, Arun Jaitley, said during his budget presentation that Sebi was preparing to allow Reits to be listed and traded on the stock exchanges.
A statement on the Sebi website said that value of assets that Reits must own should be at least 5bn rupees (Dh300 million) and the minimum size of their IPO should be 2.5bn rupees.
The minimum investment limit for investors has been set at 200,000 rupees.
Reits mainly invest in income-producing real estate assets and their earnings are mostly distributed to their shareholders. They generally get special tax treatment.
The regulator also said the trusts should primarily have at least 80 per cent of assets in completed and revenue-generating properties and the other 20 per cent can be invested in mortgage-backed securities, government securities and money-market instruments, among others.
According to the broker Cushman & Wakefield, Reit-funded assets in India may reach $20bn by 2020, of which as much as $12bn could be raised in the first three to five years.
Earlier this month Priyaranjan Kumar, the regional director of capital markets at Cushman & Wakefield in Singapore, told Bloomberg that “Reits could be the game changer for India’s property sector. It will force much-needed transparency at least in the commercial sector, and lower the reliance on financing from banks and incentivise developers to own and manage assets with a long-term view.”
The introduction of Reits will provide a new source of funding for cash-strapped developers who are struggling to reduce debt amid the highest interest rates in Asia and economic growth near the lowest in a decade. The new rules will give investors the ability to participate in the country’s property market without investing directly.
“These initiatives have opened up an additional window of funding support to the infrastructure and real-estate sectors,” said Nirmal Gangwal, the managing director at Brescon Corporate Avisors, an independent financial advisory firm. “This was long overdue.”
The combined debt of India’s six largest developers climbed to a record 394bn rupees in the 12 months through March 31.
* with Bloomberg and Reuters
