REITs fail to take off despite govt, SEBI push

Market regulator SEBI’s norms to allow setting up of real estate investment trusts (REITs) which were announced three years ago are yet to find any takers. While SEBI and the government are trying to do all they can to spark some excitement around REITS, the efforts don’t seem to be yielding desired results, report CNBC-TV18’s Kevin Lee and Kritika Saxena.

Ever since SEBI paved the way for REIT listings in india, it has been trying to push developers to take the plunge. The government has joined in the effort as well — Finance minister Arun Jaitley announced that REITs would be exempt from dividend distribution tax as well. But despite tax waivers and several SEBI consultation papers, REIT listings remain a distant dream in India — and that’s not entirely because of regulatory issues.

REITs have been successful in New York and Singapore, and while the Indian real estate sector might share similarities with these markets, the interest rate regime is a key differentiator. A return of 8-9 percent may be attractive in countries where government bonds yield 2 percent or less, but not so much in India.

Hemal Mehta, Partner, Deloitte Haskins & Sells LLP says REITS have worked in mature markets, but locking in money for 3-5 years in a country like India where fixed deposits give you 8 percent returns will not be attractive.

To its credit, SEBI has tried to sweeten the deal — the latest consultation paper suggests that 20 percent of a REIT portfolio can comprise under-construction projects. It has even suggested that hotels and hospitals be brought under the gamut of real estate assets which REITs can invest in. While developers appreciate the effort, they’re still concerned that public interest in REITs isn’t high enough to experiment with a listing.

“There will be a lot of onus on fund managers to invest in diversified portfolios that can take the returns to attractive levels. SEBI needs to put in a lot of effort to spread knowledge about REITs to retail investors,” Mehta says.


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