In an effort to attract more foreign capital, Sebi has issued fresh draft guidelines on setting up of real estate investment trusts or REITs in the country. Considering the market regulator had to put a similar attempt on hold during the 2008 recession, the industry wants a relook at key criteria for it to succeed this time, reports CNBC-TV18’s Manasvi Ghelani.
As per the draft rules: – REITs have to be registered as trusts with Sebi and floated as a real estate investment management company – REITs would be allowed to list on stock exchanges through initial public offer (IPO). – Funds can be raised through an IPO with a minimum offer size of Rs 250 crore after a mandated asset size of not less than Rs.1000 crore is in place – At least 90 percent of the value of the REIT assets have to be parked in completed revenue generating properties – At least 90 percent of the net distributable income after tax has to be provided as dividends to investors. – REITs shall only invest in assets based in India While the aim is to increase the financing options skeptics say it will do so only at much later stage. It looks like a drawback for cash crunched developers. Nikhil Bhatia, head – capital markets, CBRE said, “ 90 percent of the income generating assets, the rental income has to be distributed to the retail investors. So, there might be some capital required to upgrade the facilities. Things like this need to be thought through.” Also, while the sound of dividends may cheer up investors, tax implications need to be considered as well. S Srinivasan, CEO, Kotak Realty Fund said, “In the current scenario, if `100 is generated as rent, after tax the investors will get only `6.8 or thereabouts. So, for the REIT market to really work the government has to ensure that our tax system is aligned.” The news did manage though to spike up real estate stocks like HDIL , Unitech , DLF , Oberoi in trade on Friday, but now it is up to the central government to address industry concerns and set the ball rolling by announcing a timeline.
Source: Money Control