Sebi issues draft paper on REIT to attract investors, realtors

Sebi also proposed removal of restrictions on REITs relating to investment in SPV structures

With an aim to make the Real Estate Investment Trusts (Reits) more attractive to investors and real estate players, the Securities and Exchange Board of India (Sebi) on Monday proposed relaxed norms for related party transactions and allowed these Trusts to invest more in under-construction assets.

Sebi also proposed removal of restrictions on Reits relating to investment in special purpose vehicle (SPV) structures while norms relating to related party transactions would also be eased.

The proposed move would allow up to 20 per cent investment by Reits in under-construction projects, up from a maximum of 10 per cent allowed currently.

Besides, relaxations would be made to provisions relating to compliance of minimum public holding norms as also for investments by associate entities of trustees, according to the consultation paper. The draft papers have been put in place after Sebi’s board last month approved a proposal for issuance of a consultation paper to amend the Reit regulations.

Sebi has sought public comments on the consultation paper till August 7 and final norms will be framed after taking into account suggestion of all the stakeholders.

Sebi had notified the REIT Regulations in 2014, allowing setting up and listing of such Trusts, which are very popular in some advanced markets. However, no single Trust has been set up as yet as investors wanted further measures, including tax breaks, to make these instruments more attractive.

While the government provided for certain tax benefits in the Budget this year, Sebi has now proposed to relax the rules.

India's real estate sector has grown rapidly in recent years and the growing scale of operations of the corporate sector has increased demand for commercial buildings, office spaces, shopping centres, warehouses and conference centres.

For such assets, REITs have been preferred investment vehicles globally and can be so in India too.

One of the major proposals relates to allowing REITs to invest up to 20 per cent in under-construction projects while at least 80 per cent should continue to be invested in completed and rent-generating properties.

"REIT may be permitted to invest up to 20 per cent of value of the REIT assets in under-construction assets, securities of companies or body corporate in real estate sector, government securities, money market instruments etc. Further, the current requirement of at least 80 per cent investment in completed and rent generating properties shall continue as it is," the draft paper noted.

The proposal would provide greater flexibility to the REIT manager in determining the composition of REIT and also help widen the portfolio and the size of REIT by adding projects that are at various stages of construction.