REITs to facelift Indian Real Estate Industry
Real Estate sector is the fastest growing sectors in India. However, it has been majorly kept away from the market as a tradable investment option. Securities and Exchange Board of India (SEBI) has recently floated a consultative paper with a draft of guidelines on Real Estate Investments.
REITs are funds through which retail investors would be able to invest in shares in a company that invest in large scale real estate projects. Due to high capital values, investment in real estate is out of reach for middle-income segment individuals. However, REITs will enable them to invest small amounts in company’s shares that buy real estate projects. In addition, buyers will get access to professional management, which otherwise lacks in the industry.
Real Estate has largely been an unregulated and unorganized sector even though it has been a chief driver in generating employment and a major contributor in national growth. There has, undoubtedly, been a vast shift from individual ‘constructor-broker’ market to more professional ‘developers-property brokerage firms’ market, which has eventually helped a great deal in redefining the sphere. Still these services have not quite matched the expectations of clients as projects continue to be under pressure, delayed and surrounded by several uncertainties. The major reason for the anomaly has been increased cost of production, contractual holdups, outmoded laws and policies, all of which has collectively hindered the frequency of deliverables. As a result, the industry at large has suffered from a tarnished and poor image.
REITs will certainly curtail such practices and will engender faith in investors and high net worth individuals, who have till now abstained from investing in Real Estate. REITs will open easier and transparent investment options for investors and provide easy inflow of money to the cash crunched developers and will raise their liquidity position. It will make way for a trouble-free exit option on one hand, and investment opportunities on the other. The value of assets will have to be scrutinized by physical inspection at least once a year, updated every six months and declared at least twice a year.
A Company, to qualify to launch REIT, will have to adhere to certain set criteria such as:
- Have minimum asset size of Rs 1,000 crore;
- Have minimum 90 per cent value of REIT asset in ready properties
- It must distribute at least 90 per cent of the net distributable income after tax to investors;
- Keep vacant and agricultural land out of the mandate of REIT
With REITs, the rate of deceitful practices will be lowered as there will be an apex body to redress any malfunction, this will regain the lost faith in people who have so far seen real estate as fraudulent and will, in the long run, give real estate segment a much needed facelift.
Author’s note: Ram Kishor Arora, being the Chairman of Supertech Limited, the flagship Company of Supertech Group, has been controlling the affairs of the company since 1988. A graduate Civil Engineer, Mr. Arora started the company with a vision of providing completeness to modern standards of living.