Indian regulator revives REITs plan

REITs are listed entities that invest in income-producing real estate assets from which most of the earnings are distributed to shareholders. These assets tend to be completed properties that provide regular income to  investors from rentals.

According to the draft guidelines, only companies with assets worth at least INR10 billion ($162.8 million) can list as a REIT, provided they sell at least INR2.5 billion worth of stock in the IPO, with a minimum public float of 25%. Once listed, it may raise funds through follow-on offers.

Unlike most global REIT structures, India will only permit institutional investors and high net worth individuals to participate. The proposed minimum subscription size is INR200,000 and unit size they can invest in is INR100,000.

At least 90% of the value of REIT assets must be in completed revenue-generating properties and at least 90% of the net distributable income after tax should go to the investors.

The REIT asset can be a single project as long as it meets the minimum size requirement of INR10 billion. It cannot invest in land or mortgages other than mortgage backed securities

While purchasing a new property or selling an existing property, the value of the transaction cannot be less than 90% of the assessed value of the property while selling or more than 110% while purchasing. To avoid excessive leverage, the aggregate consolidated borrowings and deferred payments will be capped at 50% of the value of the REIT assets.

India's debt-laden developers have been struggling to raise money for future growth and development in an economy growing at its slowest pace in a decade.

While self-liquidating residential projects have received capital from foreign investors, the limited exit options on the commercial and retail side, such as sale of individual projects, has made it difficult to raise money.

REITs will allow real-estate developers to exit their developed assets to these investment vehicles and provide an additional exit route for existing investors.

The Blackstone Group has been building a portfolio of commercial real estate in India, reported to include a 50% stake in a portfolio of three business parks for $200 million from Bangalore builder Embassy Property Developments, as well as the Vrindavan Tech Village special economic zone on the outskirts of Bangalore.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Real estate
• India
• SEBI
• Real estate
• The Blackstone Group