Real estate is among the fastest growing sectors in India. However, the sector has been kept away from the financial market as a tradable investment option. Real Estate Investment Trusts (REIT), a globally proven, successful and effective investment vehicle could provide a most required link between the real estate sector and the financial market. Recently, the Securities and Exchange Board of India (Sebi) floated a consultation paper containing the draft Sebi (Real Estate Investment Trusts) Regulations, 2013 (regulations). While the policy framework of REIT has been a subject matter of discussions with Sebi from 2008, the current proposal appears seems to take the concept of Indian REIT closer to reality.
REIT is a real estate entity that offers common shares/units to the public as an investment option. Such units represent ownership in the business of managing income-producing properties. The general characteristics of a REIT are that its investor base is broad and the units are, more often than not, listed, providing liquidity to the investor. REITs can be equity REITs, mortgage REITs and hybrid REITs. Globally, REITs have been used by the housing, industrial and hotel sectors.
The regulations envisage a REIT as a ‘trust’ set up under the Indian Trusts Act, 1882. The REIT will raise funds through an initial public offering (IPO) and list the units on a recognised stock exchange. The REIT is required to be registered with the Sebi. The key parties involved in a REIT are the trustees, the manager, the sponsor, the valuer and the auditor. Significant criteria for registration of a REIT are (a) net worth of the sponsor, which is at least INR 20 crore and for the manager, is at least INR 5 crore; and (b) experience of parties to the REIT, which is slated to be not less than five years in the real estate industry or in the development of real estate. In addition, the sponsor has a minimum commitment, by way of continuing interest, to hold at least 25% of the total units of the REIT, which shall not fall below 15% of the outstanding units of the REIT at any time. Further, the regulations also provide for a suitable lock-in period on the units held pre- and post-IPO.
Public offer and listing
All offers of units (initial and follow on offers) of the REIT can be made by filing of offer document with the Sebi and the designated stock exchange. If