Assets worth up to $12 billion likely to be listed under REITs

With Sebi clearing the final guidelines for creation of Real Estate Investment Trusts (REITs), assets worth around $12 billion are likely to be listed in the next 2-3 years, according to industry experts.

To help attract greater foreign and domestic investments into real estate and infrastructure, the markets regulator yesterday cleared final guidelines for creation and listing of business trusts for these key sectors.

"Currently, Grade A office space in top seven cities of India amounts to around 376 million square feet, and we anticipate that around 50 per cent of this space will get listed in next 2–3 years," said Anuj Puri, Chairman and Country Head, Jones Lang LaSalle.

The valuation of these assets is around $10-12 billion, and this accounts for a fairly massive influx of funding waiting in the wings to hit the Indian real estate market via REITs over the next few years, he said.

Along with foreign investors, domestic institutions like insurers, pension funds and provident funds would also be allowed to invest in these trusts.

The new norms would enable listing and trading of REITs as any other security on the stock exchange platforms and also help create new platforms for raising of funds by real estate companies.

"This move is a positive signal for the country's capital markets as a whole, and the realty sector in particular. Reducing the minimum requirement for commercial real estate asset sizes permitted to be listed in REITs from Rs 1,000 crore (Rs 10 billion) to Rs 500 crore (Rs 5 billion) is likely to generate more income through this new funding channel and encourage many mid-sized development firms to consider this avenue," CBRE South Asia Chairman and Managing Director Anshuman Magazine said.

PwC Associate Director Bhairav Dalal welcomed the move saying, "this could free up some liquidity for real estate and infrastructure players, but the industry will have to wait for the release of the final regulations to check if REITs would be allowed to invest in limited liability partnerships (LLPs)."

The industry is also awaiting clarity on tax implications, said Surabhi Arora, Associate Director, Research, Colliers International.

"The recent changes are still not providing full clarity on issues like tax implications on various stakeholders and the treatment of stamp duty on transfer of real estate assets which are critical for success of REITs to ensure that these instruments are attractive enough in terms of greater yield and less risk to entice investors," she added.