Track2Realty Exclusive: Globally a successful model of funding for real estate and investment instrument for common people, Real Estate Investment Trust (REIT) could not move beyond draft guidelines by SEBI.
While the official stand has been that the Indian realty market is lacking in research-based structured depth and maturity, a section of market watchers tell Track2Realty that the all powerful bankers’ lobby and mutual funds lobby use their financial clout to block it.
At a time when the Indian realty was making hey and sun shining it seemed all the money bags had one destination point-Indian market. While some of the developers were generating enough funds through traditional options, others were looking innovative ways to generate funds through various means, including REIT outside India, like in Singapore.
There was huge amount of expectation within India that something like REIT would be allowed. Gradually when the funding options started drying, expectations turned into developers’ prayers for something like REIT to happen.
A REIT (Real Estate Investment Trust), first introduced in the US in 1962, is a corporate structure which invests its assets in real estate holdings. One gets its share of earnings or losses from the REIT’s portfolio of real estate holdings.
REITs distribute the profits earned through generation of rental income (more than 90% of annual income) to their investors in the form of dividends. This investment is comparatively more liquid as compared to traditional physical holding of real estate.
By 2008 when the cash crunch brought many of the real estate companies on the verge of collapse, the market regulator SEBI issued draft guidelines for generating funds through this globally tried and tested formula.
However, when the guidelines were still under discussion, came the mutual funds from backdoor and got an entry straight away as a legitimate way of raising funds. The REIT stayed in a discussion/draft stage and remained as something which as of now, is not permitted in India.
The SEBI has officially maintained that having both real estate mutual funds and real estate investment trusts could confuse investors. It also believes that the REIT guidelines may not be suitable for a country like India, where the property market is lacking in depth and liquidity.
However, a section of market watchers believe it has been blocked by the bankers’ lobby. They know if the REIT comes in, the real estate developers will never touch the banks.
..…to be continued
