To help attract greater foreign and domestic investments into real estate, the Securities and Exchange Board of India (Sebi) on Friday said it will soon notify norms for creation and listing of business trusts for this key sector.
Addressing a conference organised by Assocham in Delhi, Sebi executive director Ananta Barua said, “We will soon notify the new norms on Real Estate Investment Trusts or REITs.”
The board of capital market regulator Sebi had approved the regulations on real estate investment trusts (REITs) last month after receiving public comments.
According to experts, the new instrument has the potential of attracting $8-10 billion into the cash-starved realty sector.
This trust would help in the progress of the real estate sector, Mr Barua said.
Like mutual funds, REITs would pool in money from investors and issue units in exchange. Most of the money collected would be invested in commercial properties which are completed and generate income.
The new norms would enable listing and trading of REITs as any other security on the stock exchange and also help create new platform for raising of funds by real estate companies.
The guidelines, approved by the Sebi board, have fixed the minimum requirement for asset sizes permitted to be listed in India at Rs. 500 crore. Earlier, there was a minimum requirement of Rs. 1,000 crore in this regard.
REITs may invest directly in properties or through a special purpose vehicle (SPV). As per the norms, 80 per cent of the value of a REIT shall be invested in completed and revenue-generating assets, and the remaining 20 per cent may be invested in developmental properties and other assets.
In the Union budget, Finance Minister Arun Jaitley had announced significant tax incentives for this product.
The government feels the new investment avenue would reduce pressure on the banking system while also making available fresh equity in form of long-term finance from foreign and domestic sources including the NRIs for the real estate sector.