Indian REITs Association, the newly formed body that has the country’s four listed real estate investment trusts as its members, is waiting and hoping that the Reserve Bank of India will allow them to borrow from banks, to widen their funds base and aid in their growth.

Individual REITs have been in talks with the central bank, said Aravind Maiya, chief executive officer of Embassy Office Parks REIT, but there has been no response. Maiya is also the chairman of the IRA, which was formed in September last year under the guidance of the Securities and Exchange Board of India and the Ministry of Finance.

REITs can currently access the capital markets through bond and equity issuances, while in 2022 they were allowed to issue commercial papers.

The chief executives of the four listed REITs – Embassy Parks, Mindspace Business Parks, Brookfield REIT, and Nexus Select Trust – told the media that while banks are allowed to lend at the SPV level to projects, currently they are not allowed to lend to REITs directly.

Maiya pointed out that bank funding needed to grow because REITs are asset-heavy businesses that acquire real estate assets to add to their portfolios . Most of the growth comes organically, and funding has to come from both equity and debt, of which bank loans have to be a significant component, just like in other sectors.

When asked specifically if there was a timeline by which RBI could allow banks to lend to them, Maiya said that there was ‘no timeline.’

Bank borrowing for REITs

Incidentally, banks can lend to infrastructure investment trusts similar to REITs and invest in non-real estate infrastructure assets such as roads, highways, power transmission and warehouses. The REITs are seeking a level playing field with the InvITs.

REITs can borrow from mutual funds and insurance companies that are significant subscribers to the securities they issue. In 2021, amendments were made to the Securities Contracts (Regulation) Act to recognize REITs as borrowers and allow lending to them.

SEBI REIT regulations

Under the SEBI REIT regulations, there is a 49 per cent cap on the leverage that a REIT can take on a consolidated basis, including its holding companies and SPVs. The cap is calculated based on the REIT’s total assets.

The four listed REITs with over ₹1.3 lakh crore of assets under management distributed over ₹15,500 crore in the last five years.

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