The Securities and Exchange Board of India, SEBI, had planned to introduce REITs – or real estate investment trusts, way back in 2008. Market conditions, however, forced the regulator to shelve those plans.
Now it is back in the limelight thanks to the Budget. Finance Minister Arun Jaitley suggested that REITs be set up in accordance with the regulations of SEBI. He also granted a tax pass-through status, which means that the trust will be able to pass on the tax liability to investors.
REITs are listed entities that distribute most of their income to shareholders as dividends. They are registered as trusts with SEBI. They raise money through initial offers and then list their units on stock exchanges. They will be allowed to raise additional funds through follow-on offers. SEBI had proposed the minimum size of assets under management at Rs 1,000 crore. The minimum investment size would be pegged at a few lakh.
REITs abroad invest in leased offices, retail assets, warehouses, hospitals, supermarkets and so on and so forth. SEBI had proposed the following for Indian REITs.
- At least 90% of the value of REIT assets should be in ready properties generating revenue
- REITs will have to distribute at least 90% of their net distributable income after tax to investors
- Vacant and agricultural lands are not to be invested in
- The investments must only be in Indian real estate
- The assets held by REITs will have to be valued periodically and the NAV declared at least twice a year
The structure of REITs is such that it offers a real estate investment structure similar to the one mutual funds provide for investment in equity. In India, it will help individual investors enjoy the benefits of owning real estate without spending humungous amounts of money. Fast and easy liquidation is also a benefit, a big hindrance to investing in real estate.
