Sebi to notify norms for real estate investment trusts soon

The Securities and Exchange Board of India (Sebi) will soon notify norms for setting up and listing of investment trusts for the real estate sector, Sebi executive director Ananta Barua said today.

"We will soon notify the new norms on real estate investment trusts or REITs,'' Barua said while addressing a conference organised by Assocham.

Sebi had set up two committees for formulating specific guidelines for REITs and had approved the draft regulations after receiving public comments last month.

"We are trying to deepen the market and also bringing more investment products so that investment can be channelised to meet the needs of the economy," Barua said.

He also said that REITs to be introduced in India will be mainly for commercial assets - office premises, industrial parks, IT parks, warehouses, apartments, which are rental and not for residential properties.

He said REITs are different from mutual funds but are similar to the IPO in the sense that the equity shares, as asset, would be there throughout life.

"This whole regime is based on disclosures and not on merits and Sebi will not go into whether this asset is good for REIT or not; here the parties will take the transactions as a lot of transparency has been given at all the levels, disclosure will be there," he said.

Barua said, besides receiving public comments, Sebi had consulted investors, not only in India but all over the world, including pension funds, sovereign wealth funds from many countries like South Africa and Qatar among others, before framing the guidelines.

REITs would pool in money from investors and issue units in exchange. Most of the money collected would be invested in commercial properties which are completed and generate income.

The norms would enable listing and trading of REITs as any other security on the stock exchange and also help create new platform for raising of funds by real estate companies.

The guidelines, approved by Sebi board, have fixed the minimum requirement for asset sizes permitted to be listed in India at Rs 500 crore. Earlier there was a minimum requirement of Rs1,000 crore in this regard.

REITs may invest directly in properties or through a special purpose vehicle (SPV). As per the norms, 80 per cent of the value of a REIT should be invested in completed and revenue-generating assets, and the remaining 20 per cent may be invested in developmental properties and other assets.

According to experts, the new instrument has potential of attracting $8-10 billion into the real estate sector.