Sebi to relax REIT rules to attract investors

With an aim to make REITs more attractive to investors, markets regulator Sebi plans to relax its norms to allow these Trusts to invest more in under- construction assets and have a larger number of sponsors.

According to a PTI report, the Securities and Exchange Board of India (Sebi) had put in place its regulations for Real Estate Investment Trusts (REITs) in September 2014, but these Trusts have not generated enough interest among investors and industry players who have been seeking further measures to make them attractive.

While the Government has already announced various taxation related and other sops for REITs, Sebi has now decided to further amend its regulations by taking into account representations received from various quarters, said the report.

A proposal to amend REIT Regulations would be placed before Sebi’s Board next week, after which a consultation paper would be floated for seeking further comments from various stakeholders before making the final changes to the norms, a senior official said.

A consultation process is already underway for making the InViT (Infrastructure Investment Trusts) Regulations.

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The report said, besides representations from the industry for making changes to REIT Regulations, Sebi has also held several meetings with market participants and industry bodies including about steps required to smoothen the process of seeking registration with Sebi and launching of an offer.

India’s real estate sector has grown rapidly in recent years and the growing scale of operations of corporate sector has increased the 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.

Among the proposed changes, Sebi plans to remove the restriction on the SPV (Special Purpose Vehicle) to invest in other SPVs holding the assets, which in turn would allow REITs to invest in a holding company owning stake in SPVs.

It is being proposed that the REIT would hold controlling interest and at least 50 per cent equity in the holding company. The holding company can in turn hold controlling interest and at least 50 per cent equity in underlying SPV.

A large proportion of real estate projects in India are financed by financial institutions on project-finance basis where lenders require a pledge on shares of the SPV.

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In such cases, if the SPV is held directly by the SPV, the lenders would want pledge of the SPV shares held by the REIT and this might not be attractive for REIT investors with the existing restriction. Currently, an SPV is required to hold at least 80 per cent of its assets directly and cannot invest in other SPVs.

Another proposed move is to allow the REITs to have up to five sponsors, as against the current norm for maximum three.