A month after Finance Minister Arun Jaitley in his budget speech 2014-15 announced that the government would provide the necessary tax incentives to Real Estate Investment Trusts (REITs), the board of the Securities and Exchange Board of India on Sunday cleared the final guidelines for setting up REITs and Infrastructure Investment Trusts (InvITs) and thereby laid the roadmap for introduction of a new investment avenue for investors in the Indian markets. On Sunday by announcing the final guidelines Sebi set the ball rolling for product manufacturers to launch their product to be subscribed by investors with a minimum investment of Rs 2 lakh to own a piece of a high end real estate property.
While the concept of REITs been in existence in developed markets for several years now, it is a new concept in India and investors need to know what it is and how it works before they put in their hard-earned money to invest in them.
What are REITs
They are investment trusts that operate much like the mutual funds except for the fact that they invest in income generating real estate assets — commercial, residential etc and thereby look to generate return for the investors within the fund. While mutual funds invest in equities, REITs invest in real estate and make it possible for even the smaller investors to invest in real estate.
For investors it is a good option to invest in real estate as you can own a piece of a prime property for a modest sum which otherwise is impossible for small investors. It is also a less risky real estate investment mode as the investors takes a position in a developed property that provides regular income.
“For retail investors, they provide an avenue to such investors in properties which they otherwise would not have been able to take an exposure. REITs are also a popular investment option for long term pools of capital such as pension funds and insurance companies primarily since the regular stream of income helps them in managing regular outflow to their investors,” said a consultative paper on draft Sebi REITs Regulations.
The Proposed Framework in regulations
In India REIT will be set up as a Trust and will have parties such as trustee (registered with SEBI), sponsor, manager and principal valuer with specific responsibilities.
After the registration, the REIT would raise funds through an initial offer from investors and get listed. The minimum issue size of the initial offer has been specified at Rs 250 crore and the regulator has specified that the size of assets under the REITs should not be less than Rs 500 crore.
The regulator continued…