With a view to encourage and facilitate healthy growth of real estate investment trusts (REITs) in India, the Securities & Exchange Board of India (Sebi), on Friday, announced it is proposing to frame regulations for new REITs that can become an ideal investment vehicle for institutional and retail investors looking to participate in realty sector.
A draft of Securities & Exchange Board of India (Real Estate Investment Trusts) Regulations, 2008 has been put on Sebi’s official website seeking feedback from the public on or before January 10, 2008.
In recent years, India’s real estate business has seen significant expansion, underpinned by rapid economic growth coupled with a series of IPOs by real estate companies. Changing demographics, rising levels of foreign investment, vibrant services sector powered by IT sector and buoyant exports are major contributors for India’s rapid GDP growth.
The GDP growth and corporates’ growing scale of operations have led to greater demand for commercial space, including modern offices, warehouses, lodging facilities and operational infrastructure. It has also boosted housing demand. Moreover, improved access to housing finance has boosted demand for residential property. Over the last few years, modern real estate development and some investor interest has spread beyond metros and large cities.
Investment vehicle
In the aforesaid backdrop, Real Estate Investment Trusts (REITs) are expected to play a crucial role. REITs have become a preferred public property investment vehicle around the world, who boost and help to stabilise capital access, and reduce capital costs. It helps in real estate business efficiently by creating conditions for building integrated property businesses.
Most REITs in the leading markets are internally managed, and have diverse skill bases in property development, redevelopment, acquisitions, leasing and management. They provide better access to stable, global and more competitively priced capital, as well as stronger and more professional property businesses.
In the residential sector, a growing middle class is enjoying rising income levels. Increasing consumer interest has encouraged growth in organised retailing contributing to the spread of ‘mall culture’ and the popularity of other large-scale retail property developments.
REITs can become investment vehicle of choice for institutional and retail investors looking to participate in real estate ownership, management and development. They provide a similar structure for investors buying into real estate as mutual funds provide for investment in stocks.
