The stock market regulator is all set to resurrect the proposed Real Estate Investment Trust regime, notwithstanding its two earlier unsuccessful attempts. This time, it will be unveiled on the Alternative Investment Fund platform.
The trigger for the revival of REITs is to curb the “mad rush” by Indian investors to buy gold and replicate the success stories in real estate listings in Singapore.
The Securities and Exchange Board of India plans to create a new category on the AIF platform, enabling investors to subscribe to units of REITs. These units — much like those of mutual funds — will be listed/unlisted, and invest in rent-income-based real estate assets, sources told
Importantly, the regulator is proposing that 90 per cent of the income from REITS be distributed as dividends every year, which is in line with international practice.
A REIT is a single company or a group that owns and manages real estate properties on behalf of investors, much like shareholding in a company. AIF is established or incorporated in India in the form of a trust or a company that collects funds from investors.
Modifying features
SEBI is working to fine-tune the features of REITs, including who can invest in these investment vehicles and setting the minimum subscription criterion. The regulator plans to roll out the regime before the 2014 general elections, a source said.
“Today, real estate is the safest form of investment, and the REIT model has already been successful in many countries, such as Singapore, Japan, Australia, the UK and the US,” one of the sources involved in the drafting process said.
However, it will need a number of approvals, including from the Ministry of Finance and the Department of Industrial Policy and Promotion. To begin with, investments in REITs will be restricted to institutions and high net worth individuals. They may be thrown open to retail investors, perhaps after three years.
SEBI had formulated the draft regulations for the REIT regime in 2007, but it was never implemented. Subsequently, the regulator decided to roll it out on the mutual funds platform, but that too did not take off, owing to a different set of requirements for retail investors.
The difference
Category II of AIF covers real estate funds, where investments are made in the units of a fund that, in turn, invests in real estate assets.
There is a slight difference in the proposed new category of AIFs.
Here, investors will be able to invest directly in real estate assets. Therefore, the new category is meant for investors with high-risk appetite as a result of the direct exposure to realty assets.