Sebi clears decks for REIT launch

The Securities and Exchange Board of India (Sebi) on Sunday set the stage for launch of Real Estate and Infrastructure Investment Trusts, commonly referred to as REITs and InvIT.

In the final regulations, the market regulator has made some major changes to what it had proposed earlier. These include allowing foreign institutional investor (FII) participation and reducing the minimum asset size for a REIT. Those in the sector said these two new instruments had the potential of attracting nearly Rs 1 lakh crore to the cash-starved real estate and infrastructure sector.

The proposals were cleared at a meeting of the Sebi board, which was addressed by Finance Minister Arun Jaitley. In Budget 2014-15, the finance minister had announced giving a pass-through status to these trusts.

In his first interaction with Sebi's board after assuming charge as finance minister, Jaitley asked the regulator to be vigilant about possible violations in the marketplace and to come up wit measures to attract retail investors and address their grievances. Sebi Chairman U K Sinha said after the meeting that these trusts would help in the progress of the real estate and infrastructure sectors.

While the draft guidelines did not give a clarity on foreign investments in these trusts, the final norms have permitted foreign entities to invest in REITs. These investments, however, will be subject to certain guidelines, which will be issued by the Reserve Bank of India.

Among other changes, the minimum asset size of REITs, fixed at Rs 1,000 crore in the draft guidelines, has been reduced to Rs 500 crore. This is expected to bring in more assets under these trusts.

The final guidelines have also liberalised norms related to sponsors of REITs. It has increased the number of sponsors to three (from one), provided an individual owns at least five per cent of the fund.

The final guidelines have also relaxed investment norms. Now, investment of up to 20 per cent is allowed under construction assets, shares, debts of real estate companies, mortgage-backed securities, against 10 per cent proposed in under-construction assets.

"Reducing asset size to Rs 500 crore is a significant move, as it will allow more players to access this platform. Allowing REITs to invest up to 20 per cent in real estate equity and debt, will give room to diversify investment portfolio," said Bhairav Dalal, associate director, PwC India.