Monday, 22 December 2014

Right Push - REIT- a game changer or not?

The introduction of REITs will give an advanced funding option and provide a globally competitive edge to the Indian real estate industry, but is India ready for it?.

The Securities and Exchange Board of India (SEBI) recently announced guidelines for the creation of Real Estate Investment Trusts (REITs) in India. A REIT is a company, in most cases, that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types stable income streams, diversification and long-term capital appreciation.

Since the announcement of REITs, there has been much talk on whether India is ready for them and if they will be a game changer for the realty sector. Anshuman Magazine, CMD, CBRE South Asia Pvt Ltd feels that at a time when India's realty sector has been struggling for alternate avenues of funding-other than traditional banks and financial institutions-and private players have been sourcing institutional capital, permitting REITs can act as a key enabler for capital markets in the country. The instrument can provide investors with low entry levels into the sector, as well as with exit options. “The establishment of the India REIT market is at a very nascent stage as yet; and successful implementation and development will rest on factors related to the regulatory environment, market conditions and issuers investors," he states.

According to Neeraj Bansal, partner and head Real Estate, KPMG in India, "India has plenty of completed real estate assets ready to be packaged into REITs.The total value of office real estate pan-India stood at USD 34 billion as of end-2013. Additionally, as at the end of 2013, India has office space of 376 million square feet across its seven biggest cities. These statistics do indicate a strong potential investment opportunity and a fertile ground for the REITs to flourish in India. REITs are likely to infuse additional transparency and liquidity in the Indian real estate market. Additionally, the introduction of REITs will provide a new source of funds to Indian developers hitherto struggling to reduce debt, with interest rates among the highest in Asia, while giving investors the access to benefit from regular income and appreciation from the country's property market."

Anuj Puri, chairman & country head, JLL India further explains, "There has been considerable sentiment traction on the introduction of REITs, which can enable small savings to be channeled into real estate for the first time. REITs will render the entire real estate funding process more institutionalized, and therefore transparent. Some of the stringent measures proposed in the earlier version of REIT guidelines have been relaxed, with a view to making Indian REITs competitive globally."

However, according to a report by global accounting firm KPMG jointly with Indian Private Equity and Venture Capital Association (KPMG-IVCA). Real Estate Investment Trusts (REITs) could be a game changer for the realty sector, but lack of clarity on taxation and regulatory aspects might act as roadblocks for attracting foreign investments in the commercial space.

Talking about the challenges REITs will face for attracting foreign investments in the commercial space, RK Arora, chairman & managing director, Supertech Limited points out, “The success of REITs in India will take some time as much transparency is required in the entire procedure. REITs must enjoy special tax treatments, not only in regular income; but also on capital gains. Policymakers, regulators and the developer community are hopeful that REITs will usher in much-needed transparency, best practices and good governance into the sector. REITs becoming a part of the Indian investment scenario will certainly provide several major advantages to the investors."

A few amendments will certainly give REITs the required push and eventually move the real estate industry in an upward direction.

Source: PropertyatNeoDevelopers.Wordpress.Com

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