REIT as new source of fund: Indian capital markets witnessed the wave of REIT [Real Estate Investments Trust] in 2014, as per as SEBI regulations, a REIT shall invest only in commercial real estate assets, either directly or through special purpose vehicles (SPVs). Income earned by REIT could be through rentals or capital gains or both, and it gets distributed to unitholders. A unit shall be as small as Rs 2 lakh enabling the retail investors to participate in the realty market indirectly without the need of high capital to own a real estate asset. As per as later amended rules, at least 80 percent of the value of the REIT assets shall be in completed and revenue generating properties whereas the balance 20 percent may go in under-construction projects which can lead to generation of alpha in terms of potential returns for investors. With this configuration of deployment largely in completed projects, the capital protection of investors money is guaranteed. India’s first REIT listing shall infuse further liquidity in commercial office space projects and , Special Economic Zones and IT parks. REITs provide an avenue for retail as well as institutional investors to participate in real estate ownership. Budget 2015 provided pass-through status to the rental income arising to REITs from real estate property directly held by it.
REIT will thrive and create a trust in developers as people are willing to covert a long leap annuity business with the asset holding capacity by the developers. Through this the REIT’s will be able to rate funding on the said asset class and this will share great benefit to the people. With the Involvement of REIT; people who are not able to buy an asset they are able to benefit through the opportunity to have an ownership of the assets as an investor with the help of submitting insights through a form of trust with annuity income and long term lease. REIT indeed is going to be noticed as a sustainable model for a country like India and prove to be a blessing disguise for cities like Mumbai, Delhi, Gurugram and Bangalore. Developers have created a long term play by owning and renting such asset classes, prioritize and create a larger equity capital for future government expansion. Such a move will benefit the developers, land bank owners along investment individuals who aren’t able to win a whole asset.”
[This is an authored article by Parth Mehta, Paradigm Realty. All views, opinions and expressions are personal and limited to the author.]