Cabinet allows foreign investment flows to real estate investment trusts

The union cabinet has given its approval to allow the real estate investment trusts (REITs) as an eligible financial instrument under the Foreign Exchange Management Act (FEMA), 1999.

The approval will enable foreign investment inflows into completed rent yielding real estate projects, which is, as of now, prohibited under the FEMA Regulations.

Henceforth entities registered and regulated under the SEBI (REITs) Regulations 2014 will be able to access foreign investments, which as of now are prohibited under the FEMA Regulations.

The introduction of REITs as an instrument will help 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, a finance ministry release stated.

The finance minister had, in his 2014-15 budget, proposed the introduction of REITs, which have been successfully used as an instrument for pooling of investment by several countries for investments in the real estate, with a view to earning income and distributing earnings from its investments to investors, who have contributed to the pooled corpus.

Although the REITs have been issued vide SEBI (Real Estate Investment Trusts) Regulations, 2014, actual investment has not occurred so far on account of restriction under FEMA Regulations.