To make the listing of Real Estate Investment Trusts (REITs) more attractive in the domestic market, the Securities and Exchange Board of India is looking at raising the cap on the extent a REIT can invest in a project. Sebi is also mulling to increase the limit of a single entity?s investment.
Sources said Sebi was likely to revise the current draft regulations, which limit a REIT?s exposure to 15% of a single real estate project and a single group?s exposure to 25% of a project. These caps keep developers from owning controlling stakes in projects, which is not the case in other countries.
Once the draft regulations are modified, they would become much more realtor-friendly and make their listings in India more favourable. Real estate developers, law firms and financial institutions have already held a series of meetings with Sebi officials to drive home the point.
If a relaxation does not happen and developers float REITs in the overseas markets, the money would then be treated as FDI and investments in projects would be subjected to regulatory approvals.
Sources said, doing away with the caps also makes sense as the draft regulations were detailed enough to specify projects where money could be invested, thus ensuring the safety of retail investors. ?The guidelines provide for an independent valuer who conducts an independent valuation, and there is adequate disclosure in the prospectus,? said an industry analyst.
A REIT is an instrument that allows investors an investment pattern like a mutual fund. While mutual funds allow entities to invest in shares, a REIT is a trust that uses the pooled capital for investing in income-generating assets to buy out investments from a developer or mortgage loans.