Globally, REITs are a popular investment option for pension funds and insurance.
SEBI is likely to allow Real Estate Investment Trusts (REIT) in India. It has put out a consultative paper on REITs for public comments recently. Earlier, in 2008 too, SEBI had come out with a draft regulation on REIT.
REIT, somewhat like a mutual fund, pools the money of investors and invests in real estate. According to the consultative paper, REIT should have to invest at least 90% of their corpus in completed revenue generating properties so as to ensure regular income to investors. SEBI proposes to allow REIT to invest up to 100% of their corpus in a project with minimum asset size of Rs 1000 crore. Also, no REIT is to be allowed to invest in vacant, agriculture or mortgaged backed securities or lands.
The structure of REIT will consist of trustees, sponsors, managers and a principal officer. Like a mutual fund house, trustee of REIT will play a supervisory role and will be independent of sponsor and manager. Once it gets SEBI approval, it will have to list itself so that it can raise funds through follow-on offers. REIT will have to declare their NAV at least twice a year.
SEBI has signaled that only large and resourceful players can enter the market since it has proposed that REIT should have a minimum asset size of Rs 1000 crore to float an initial offer. Further, the minimum size of initial offer should be Rs 250 crore to ensure adequate public participation.
REIT can raise funds from retail investors, HNIs, foreign etc. However, only HNIs and institutions are allowed to invest during the initial stage. Also, the minimum subscription size is proposed to be Rs. 2 lakh and unit size at Rs 1 lakh.
Some key features of REIT:
- It will be managed by professional fund managers who have diverse skill in property development, redevelopment, acquisition, leasing and management.
- Listed REIT will provide easy exit and liquidity benefits to the investors
- REIT will bring in transparency and accountability in the real estate sectors.
- Investors should have right to remove the manager, auditor, principal valuer, seek delisting of units etc.
- REIT should have to organize an annual meeting of investors to discuss the matters related to accounts, valuation, performance etc.
ยท Approval of investors is mandatory for all transaction above a threshold limit.
