The real estate sector over the years has attracted many, to approach it as asset class and an effective wealth creating investment avenue. But sky-rocketed property prices in some segments and regions have kept many investors away (although they vie to invest in property). Thus as result, the real estate sector too is witnessing a slump in sale while the country is undergoing an economic slowdown.

But now in the Government's effort to attract investments and make capital markets more vibrant; here's some good news for those of you wanting to invest in the real estate sector. The Finance Ministry is considering introduction of Real Estate Investment Trusts (REITs).

So, what are REITs?

Well, they would be offered by real estate companies who will pool capital from investors to purchase and manage real estate assets and/or mortgage loans and are traded on major stock exchanges like normal stocks.

It is expected that introduction of REITs, may bring in the following benefits...
 

For the real estate sector:
 

• It could help the real estate sector to raise stable funds
• Will encourage developers to think long-term
• Will infuse transparency to the real sector (and would be well-regulated now if the Real Estate Regulation Bill is passed in the monsoon session of the parliament)
• Instil professionalism in property management
   

For the investors:
 

• Can make investing in real estate accessible to those who may not have the resources or may not want to directly buy a property
• Offers an alternative investment avenue
   

For the economy:
 

• Attract overseas investment
• Could help in development of capital markets
• Could help bringing in stable long-term flows which are needed to finance country's Current Account Deficit (CAD)
   

It is noteworthy that, the market regulator - the Securities and Exchange Board of India (SEBI) had issued guidelines for REITs in 2008, but unfortunately the final norms were never issued. In the covering note to the draft guidelines, SEBI had said, "REITs have become a preferred public property investment vehicle around the world. REITs boost and help to stabilize capital access, and reduce capital costs. REITs help in real estate business efficiently by creating conditions for building integrated property businesses." But the then SEBI Chairman, Mr C.B. Bhave had cited non-transparent valuation norms, differential stamp duty cross different states and the lack of uniformity in land and property pricing as the major hindrance in the way of REITS.

PersonalFN is of view that the aforementioned benefits of REITs for investors, real estate sector and economy, brings a synergetic advantage. Real estate players have time and again demanded establishment of REITs, which are very popular instruments in the developed markets. Sovereign wealth funds and pension funds, who are long-term investors, have always shown interest to invest in India, and REITs may attract such money which would help in integrated development of the real estate sector.

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shenoypr@live.com Jul 12, 2013 Introduction of REITs will not only attract investors to the real estate sector but will bring about transparency and better governance in the real estate business.

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