Growth push: Sebi set to broaden avenues of investment for REITs
MUMBAI: Real Estate Investment Trusts (REITs) may soon become a reality in India with the market regulator set to further relax rules that would allow these vehicles to broad-base their avenues of investments. The Securities and Exchange Board of India (Sebi) will allow REITs to invest more in under-construction projects, rationalise unit holder consent for related party transactions and provide flexibility to invest in assetholding entities through intermediate special purpose vehicles. The regulator will make these changes in its board meeting on Friday, which will be the last for its longestserving whole-time member Prashant Saran. The Sebi board is also expected to relax rules on related party transactions.
REITs are investment trusts that pool investor money to buy real estate such as office buildings, shopping malls and rental housing. Several billions of dollars could be brought in through REITs in the first three years itself, industry players have told regulators.
“Allowing flexibility to REITs to invest in asset-holding entities through an intermediate SPV (special purpose vehicle) should help in expanding the universe of assets. It should also offer more flexibility in structuring leverage effectively. This should help in improving returns for unit holders,” said Siddharth Shah, partner-corporate and funds, Khaitan & Co. “Tax pass through for such additional SPVs would be key to preserve tax efficiency.”
Rationalising the unit holder consent for matters requiring their approval would ease administrative and governance burden under the current regulations and better align these regulations to other public market products like initial public offerings, industry players said. The regulator will put out a discussion paper proposing these changes, said a person familiar with the development.
Sebi has proposed to allow REITs to invest up to 20% in under-construction projects from the current 10%, a move that would help the trusts in exploiting developmental potentials in their assets better. “This should help in improving blended returns for the unit holders – an issue at the heart of commercial feasibility of this product in India,” Shah said.