Banks, public financial institutions, insurance companies and corporate houses can be trustees of REITs, which should be created under the Indian Trusts Act, according to Sebi.
The trust and management company are required to be registered with Sebi and they should have a minimum networth of Rs 5 crore (Rs 50 million). REITs will be close-ended and the schemes will be compulsorily listed on stock exchanges. Before launching, the schemes should also be valued by a principal valuer empanelled with Sebi.
REITs, which will be regulated by Sebi, are barred from making investments in vacant land and none of their schemes should have exposure to more than 15 per cent of their funds in a single property project, accordig to the draft rules, which will be finalised after getting feedback from the public and experts.
They should also not have exposure to more than 25 per cent of all the real estate projects developed, marketed, owned or financed by a group of companies.
Property consultants welcomed the Sebi move, saying this would help private equity investors to exit from their investments in real estate projects within a mandated timeframe.
"Private equity comes at the beginning and it takes 5 to 7 years for the projects to get ready. Since FDI (foreign direct investment) is not allowed in finished projects, REITs will provide them a platform to exit," said an official of an international property consultant.
Private equity firms have invested nearly Rs 25,000 crore (Rs 250 billion) in Indian real estate and infrastructure in 2007, according to business consultancy firm Grant Thornton India.
"REITs will curtail the black money in the property market since buyers invest in properties in unaccounted money. REITs will create a new investment class with transparent practices and disclosures," he said.
The Sebi move comes amid plans by the country's biggest real estate players, including DLF and Unitech, to raise nearly $5 billion from the Singapore Stock Exchange through REITs early next year.
"REITs have become a preferred public property investment vehicle around the world and can become the investment vehicle of choice for institutional and retail investors looking to participate in real estate ownership, management and development," said Sebi.
At least 50 per cent of the trustees of the REIT and its management company should be independent and not directly or indirectly associated with persons who have control over the trust or management company, said the regulator.
Sebi said the schemes should invest only in income-generating real estate projects. In the case of uncompleted units in a building or units that are in the course of substantial development, the contract value of such real estate must not exceed 20 per cent of the net asset value (NAV), which will be disclosed on an yearly basis.
"The lower limit for property under development means upside at the development stage cannot be captured fully," said Milind Barve,MD, HDFC Assets Management Company.
Way Ahead
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Banks, public financial institutions, insurance companies and corporate houses can be trustees of REITs
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The trust and management company are required to be registered with Sebi.
- They should have a minimum networth of Rs 5 crore
