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REITs are here, have potential to create a new paradigm in realty

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By DK AggarwalREITs have gained acceptance worldwide with better and credible returns among investors.

At home, the growing need for additional sources of funds for the cash-strapped realty sector made Sebi to set the stage for the launch of REITs on October 10, 2014. To note, Indian REITs are allowed only to hold commercial properties.

Also, in order to bring more transparency to the real estate sector in India and to fully exploit the potential of sector, the Government of India (GOI) has brought in RERA and brought the section under GST.

Besides, bringing in better corporate governance standards and more liquidity, the introduction of REITs will help broaden and deepen the capital markets, offering a liquid real estate asset class to complement equities and bonds.

It will also bring global and domestic investors to participate in the growth of the Indian real estate sector, as it would help reduce over-dependence on a specific mode of financing.

The real estate sector in India is expected to become a $650 billion industry and its share in India’s Gross Domestic Product (GDP) is projected increase to 17 per cent by 2040. Take the example of the recent IPO of Embassy Office Parks REIT.

This provided an opportunity to own best in quality well-diversified commercial office space portfolio in India.

Going forward, more REITs are expected to come and offer investors an opportunity to participate in the growing commercial real estate sector.

Instruments such as REITs will not only boost investor confidence, but at the same time would provide one more exit option to the PE players.

The structure of REITs is similar to that of a mutual fund, but they invest in physical real estate.

The money accumulated is distributed in income-generating real estate.

Of the rental income that REIT receives, at least 90 per cent is mandated to be passed on to the unit holders.

REIT is expected to bring transparency.

Since all transactions would take place through normal banking channels, it will prevent entry of black money in the sector.

The success of the REIT regime will be significant, as it has the potential to create a system that significantly boosts capital flow in the investment space.

On the developers’ front, by selling stabilised assets to REITs, developers can unlock capital that can be used more effectively in new projects.

For investors, REITs offer a hassle-free investment instrument.

They provide benefits of a real estate portfolio as well as liquidity, high yields, domestic and global real estate exposure and professional management. Chairman Managing Director,SMC Investments and Advisors Limited




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