In a move that could boost investments in the real estate sector, the Securities and Exchange Board of India (Sebi) has announced a draft proposal for the launch of a scheme by the Real Estate Investment Trust (REIT). This will help meet the capital needs of the real estate sector and also allow investors to participate in the real estate growth opportunity. These proposed guidelines will come into effect from the date of their publication in the official gazette. When finally approved, it will be known as Sebi (REIT) Regulations, 2008.
In a 64-page draft proposal, Sebi said that a scheme shall be launched by a trust which will be managed by a real estate investment management company.
The trust and management company must have a net worth of not less than Rs 5 crore. The REITs should have an adequate infrastructure and good professionals with requisite experience in their respective fields, Sebi said.
Sebi said that the trustees can be a bank, trust company of scheduled bank, public financial institution, insurance company or a body corporate.
All the schemes offered by the REITs will be close-ended only which will be compulsorily listed. The Net Asset Value (NAV) of these schemes will be disclosed preferably on an yearly basis which will be based on the valuation report prepared by the principal valuer, Sebi said.
These scheme shall invest only in a viable real estate property. The contract value of real estate must not exceed 20% of the NAV in case of uncompleted units in building or units which are being developed substantially. However, the regulator has proposed not to allow investments in vacant land.
A trust under all its schemes shall not have exposure of more than 15% of any single real estate project.
Similarly, any trust, under all its schemes, shall not have exposure to more than 25% of all the real estate projects developed, marketed, owned or financed by a group of companies, Sebi said in its draft proposal.