Cheers for Real Estate
Property Expert English|September - October 2016

The SEBI has proposed relaxed norms for REITs to allow them to invest more in under-construction assets. REITs are well on the path of becoming one of the most attractive investment vehicles

Sujeet Kumar Jha

It was in the year 2008, when Real Estate Investment Trusts (REITs) were first planned to be introduced by the Securities and Exchange Board of India (SEBI) in the real estate sector. However, these could not become a reality even after so many years passed by, only due to the lack of clarity on their norms. Even the last hurdle in the way of successful listing of REITs could be cleared only recently when in the budget 2016, the finance minister Arun Jaitley proposed removal of dividend distribution tax (DDT) on them.

Taking a step further in the direction of making it viable for the Indian market, recently the SEBI released a consultative paper – SEBI (Real Estate Investment Trusts) Regulations, for comments. Subsequently, the SEBI decided to relax rules for REITs, including allowing them to invest a larger portion of their funds in assets under construction.

The SEBI has also approved proposals to remove restrictions on REITs relating to investment in the special purpose vehicle (SPV) structures, while the 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.

Considered as a move that will bring respite to the real estate sector which is reeling under liquidity crunch and poor sales, the SEBI has in a way re-initiated the process of introducing REITs in the country.

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