SEBI MAKING REIT ROUTE EASIER FOR REALTY
By Hrishi Kumar
With the dawn of Affordable Housing, Housing For All and Smart Cities Mission, demand for property is projected to multiply in the course of next few years. There is no denying in the fact that today, the realty sector of India is facing a strong cash crunch and dampened investors’ confidence. The failure of analysing real demand, improper infrastructure, saturation of Tier 1 cities, property price escalation, stringent FDI norms and absence of a regulator in the sector had caused real estate in India to hang by a thread. Thus, the projects that were launched earlier and those that are on verge of getting ready, or have delayed, has been the work without much supervision; as a result, failing to impress today’s market. Whereas, the plans of today will blossom tomorrow and it is crucial for the government to provide much needed support to revive the sector. Although, the government over the last couple of years has brought in several measures to ease the ways of conducting business in the Indian real estate sector that will help the demand to grow in near future. With the Securities and Exchange Board of India (SEBI) relaxing norms for REITs for investment in realty sector, the cash crunch problems will be answered and hopes will be high for a better demand of property in future.
Real Estate Investment Trust (REIT) is a company that owns or finances income-producing real estate. Much like mutual funds, REIT provide investors with all types of regular income streams, long-term capital appreciation and diversification. This tool allows anyone to invest in portfolios of large scale properties, by way to investing in stocks. The stockholders of REIT earn from the income produced without having to own or finance a property. Recently, the Budget Session 2016-17 had announced the evasion of Dividend Distribution Tax (DDT) from the income arising out of REITs, thus making it a more lucrative deal for the investors. SEBI, on the other hand, has increased the proportion of holdings for under-construction properties. Adding further, SEBI has also proposed changes that would make it easier for eligible offshore fund managers to relocate to India, plus allowing them to register as portfolio managers or as investment advisors. “The investment cap of REITs has been increased from 10 to 20 percent for under construction projects. Indian realty sector is pretty much starving and REIT will here provide a much needed alternate route of fund raising and attract several small and medium level investors in the sector. With plans to upgrade Indian infrastructure already laid, REITs might serve as a chief instrument in years to come”, explains Vikas Pundir, CMD, SKB Group.
Also agrees Kushagr Ansal, Director of Ansal Housing, as he says, “The REITs route has been eased enormously over the last few months. Removing DDT from the income earned through REITs and now increasing the investment cap will surely boost the investors sentiments. But, with the promise of high investment and returns, comes greater risk as well. If a project gets delayed, the chances of funds getting stuck are very high. Although, RERA has now become an Act and will now look into timely completion of projects. If Single Window Clearance System gets operational Pan-India, investors will feel more secured while investing with a long term vision.”
Indian residential real estate sector has plans to deliver over 7,50,000 units in the next 4-5 years with commercial real estate quickly gaining momentum as well. Thus, there are a wide variety of options available for investors along with a huge scope of returns. “At present, there is almost 250 million sq. ft. of office space that is eligible for REITs and if even 50 percent of these get listed, there will be a total REIT listing of around Rs. 1,34,000 crores. InvITs have also started to make rounds with SEBI recently approving two out of the four applications for the same. Infrastructure in India is soon to take a giant leap with lots of funds allocated for Smart cities mission and Housing for all. With so much real estate in pipeline, REITs will perform successfully”, avers Ankit Aggarwal, CMD, Devika Group.
“REIT is a concept which has been followed by several countries abroad, more particularly in the realty sector. Considering the results of REIT in those countries, even Indian government has introduced it here. REITs are to work under the control of SEBI which earlier had some tough regulations. However, now allowing the investments in under-construction projects, it will prove to be a game-changer. Also, SEBI has removed the restrictions on SPVs, who are now allowed to invest in the holding & assets of any other SPVs. Therefore, the realty fraternity definitely welcomes this step and hopes that it will boost the sector’s pace in near future”, elucidates Ashwani Prakash, Executive Director, Paramount Group. Like REITs, Infrastructural Investment Trust (InvIT) is much like mutual funds, that enables direct investments of small amounts of money from individuals or institutional investors with a promise of small amounts of returns. Even InvITs is rapidly gaining momentum with several institutional investors showing keen interest.
Concluding on the chapter and elaborating on how REITs and InvITs will shape up the Indian realty sector’s future, Vikas Bhasin, MD of Saya Group says, “The government is leaving no stones unturned to pick up the country’s realty sector and present it on the global map. Easing ways of doing business, attracting FDI and appointing instruments such as InvIT and REIT to boost the cash flow in the sector are a proof of the eagerness shown by the government towards this sector’s success. It is evident that there is a massive fund crunch in the sector with projects getting delayed; and to fight it out, government is working in two ways; boosting investors’ confidence by making entry’s and exit’s easy and bringing policy reforms to enhance transparency. Once REITs and InvITs become fully operational, this sector won’t remain cash starved, plus offer returns to the investors, better then any other country due to the large scale production that is present here.”