It is an investment structure that's been a non-starter despite several nudges from the regulator and the government. Despite Sebi bringing out real estate investment trusts (REIT) guidelines last year, the product is yet to find takers in the Indian market. CNBC-TV18’s Sajeet Manghat and Alexander Mathew report.
It took the securities market regulator 6 years to frame regulations for real estate investment trusts or REIT's. Yet over a year on since the rules were announced, little has moved on ground.
Sebi chief UK Sinha acknowledges the lack of enthusiasm but adds that the delay is just an initial hiccup.
“I am not discouraged because even if I look at data from the US for example first few years were areas and periods of learning. The growth started happening only after the first 5 or 6 years...” Chairman of Sebi, UK Sinha says.
Sinha has invited industry to place its issues before the regulator. There are several sticky areas. For instance the level of subsidiaries permitted to hold real estate assets, the industry seeks a relaxation in current norms to allow at least two levels of subsidiaries to facilitate easier consolidation between different SPVs.
Control is another issue. Current regulations require the trust to hold at least 50 percent equity of interest to have control over the asset. This is in contrast with public listed companies where control is not linked to the level of share holding. Current norms also do not permit REITs to mix up different asset classes like residential, commercial and retail. REIT holders also don't have any preferential rights under a particular asset classes.
The industry is seeking a relaxation in these norms. One of the most important demands is to bring REITs under the ambit of the securities Contract Regulation Act. This will allow units to be treated at par with securities enlisted in the act and allow institutions like insurance companies to trade and participate in the REITs market.
Experts believe some of these issues will get resolved as the first couple of issues hit the market.
“I can envisage a fairly intense negotiation at evolving an appropriate listing agreement. That conversation will happen both with the stock exchange as well as with Sebi. And who ever is the first volunteer to do this has to address this.” says Cyril Shroff, Managing Partner, Amarchand Mangaldas.
While Sebi will be looking at some of the regulatory issues, the industry also requires clarity on taxation. Investors are hoping for a resolution of issues relating to the levy of minimum alternate tax and dividend distribution tax on the SPV and REIT level. Clarity on foreign capital investment limits in these trusts is also awaited.
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