The approval from the Securities and Exchange Board of India for setting up and listing real-estate investment trusts (REITs) buoyed real estate stocks today. Companies such as DLF, Prestige Estates, Phoenix Mills, Oberoi Realty and Godrej Properties, who own sizeable commercial property assets advanced in the morning session.

According to the real estate apex body CREDAI, REITs could help unlock funds, estimated at around ₹60,000 crore. JLL, a real estate advisory firm, anticipates that nearly half the 376 million square feet of Grade A office space in the top seven cities in India will likely get listed in next two-three years.

The new funds can be a boon to cash-strapped property developers whose debts have been on a rise. Selling completed commercial projects was not easy in the past and the launch of REITs could help developers sell their assets to pay off loans or use the money to launch new projects.

DLF, the largest developer, will be among the key beneficiaries from REITs. In the past year, the company’s stock price was weighed down due to lingering concerns about its high net debt - ₹18,500 crore as of March 2014. DLF has been hiving off non-core assets and its land holdings to lower debt.

The company’s interest outgo has been hovering around 30 per cent of sales, denting profits. In 2013-14, interest expense increased 6 per cent year-over-year to ₹2,463 crore. The company has been exploring ways, such as issuing Mortgage Backed Security, to raise funds. Expectations of the regulator clearing the decks for REITs had pushed up the stock price already – it has rallied nearly 50 per cent since March 2014.

Likewise, REITs can help Phoenix Mills, which operates Phoenix City malls, offload its assets to reduce debt. The company’s gross debt increased to ₹2,070 crore as of March 2014, up from ₹1,600 crore in March 2013.

The regulators have also allowed REITs to invest up to 20 per cent of their assets in to mortgage backed securities, under-construction assets and equity and debt of real estate companies. This can further the expand the assets that these companies can offload to the REITs.

However, it may take a while, six months to a year, for REITs to be launched, say experts. It also remains to be seen how the commercial assets would be valued. Paying a high price may lead to lower returns for the REIT investors. So it is likely that sale price may only be moderate. This would mean that only developers with large debt may be interested. Others, such as Oberoi Realty, which is better placed financially, may be less likely sell its commercial assets as it is a high margin business.

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