Realty stocks gain on buzz govt to amend FEMA Act for foreign funds in REITs

Nine realty stocks gained by 0.96% to 9.815 at 10:35 IST on BSE on reports the finance ministry has floated a draft cabinet note to amend the Foreign Exchange Management Act to permit overseas funds in real estate investment trusts.

Meanwhile, the S&P BSE Sensex was down 78.94 points or 0.32% at 29,587.38.

Among realty stocks, DLF (up 3.85%), D B Realty (up 7.53%), Unitech (up 4.76%), Housing Development & Infrastructure (HDIL) (up 9.81%), Godrej Properties (up 0.96%), Phoenix Mills (up 1.14%), Anant Raj (up 3.01%), Parsvnath Developers (up 4.58%), and Oberoi Realty (up 2.9%) edged higher. Sobha (down 0.21%) and Prestige Estates (down 2.36%) declined.

The finance ministry has reportedly floated a draft cabinet note to amend the Foreign Exchange Management Act to permit overseas funds in real estate investment trusts, which have already received a policy green light.

The act had been amended in 2005 to allow foreign direct investment in development of townships, construction of residential and commercial premises, roads and bridges.

The regime has been significantly liberalised by the Narendra Modi-led government to spur investments in the sector, seen as a big contributor to jobs. Finance minister Arun Jaitley had announced real estate investment trusts (REITS) and infrastructure investment trusts in his budget in July 2014 to enable developers and banks to reduce their debt.

Subsequently, the Securities & Exchange Board of India, the market regulator, unveiled a framework to set up REITs. Provisions in FEMA, however, prevented the operationalisation of the new structure, which has been used successfully in several countries.

At present, foreign investment in real estate assets, specifically completed commercial real estate properties, whether rent yielding or not, is not permitted under FEMA.

REITs pool capital from investors to purchase and manage income-yielding real estate assets or mortgage loans and can be traded on major stock exchanges like normal stocks. REITs are expected to attract big-ticket funds to this starved sector and help make it more efficient and transparent.

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