The Union Cabinet has permitted foreign investors to invest in Real Estate Investment Trusts (REITs) and classified REITs as an eligible financial instrument under the Foreign Exchange Management Act (FEMA), 1999.
The move is expected to boost inflows in the commercial and completed rent yielding real estate projects.
“The intent of introducing the instrumentality of REITs is to reduce pressure on the banking system to which the real estate sector looks for funds, free up existing funds of Banks and to encourage construction activities. REITs while attracting long term finance from foreign and domestic sources including NRIs would make available fresh equity to the sector,” said a statement posted on the PMO website.
Earlier, Finance Minister Arun Jaitley gave pass through status to REITs & Infrastructure Investment Trusts (INVITs). Globally, REITs are a popular investment option for pension funds and insurance firms. REITs own various kinds of commercial real estate like office space, studio apartments, warehouses, hospitals, shopping centers, hotels, etc.
REIT, somewhat like a mutual fund, pools money from investors and invest in real estate.
Key features of REITs:
- REITs can only invest in commercial properties
- Only 20% of the assets can go into under-construction assets, shares/debt of real estate companies and mortgage backed securities
- Minimum ticket size for the retail investors is Rs. 2 lakh
- The units of REITs can be traded on stock exchanges
