REIT - Ideal Working Model for Indian Context

Abstract

The Government of India gave priority to real estate sector because of its potential to boost economic growth significantly. In view of the crucial role that REITs could play as an investment vehicle, the SEBI came out with the draft of REITs regulations in December, 2007 in order to encourage and facilitate a healthy growth of REITs in India.

However, these regulations could not be finalized for various reasons including the global economic slowdown. In a welcome move, SEBI once again taken out draft REITs Regulations, 2013, which were approved and announced by SEBI on 26th September, 2014. Mutual Funds (MF) industry in India has been growing fast in the ongoing reforms era, particularly since the 2000s when the MF industry has witnessed many innovations. In spite of this, instruments which are very similar to MFs viz. Real Estate Funds (REFs), and its variants like Real Estate Investment Trusts (REITs) are yet to pick up momentum in India. In fact, REFs and its variants like REITs have tremendous growth potential in India; given the very low mortgage penetration in the country. Investments in REFs or REITs can offer significantly higher returns in India as against similar investment in developed nations. Hence, if properly developed REFs or REITs can significantly support the growth of residential real estate sector in India by attracting greater investment into this sector. SEBI has done a commendable job by considering international models, views of the stakeholders etc. while redefining its regulations. As SEBI goes ahead with the promotion of REITs, this paper closely looks into the features of the REITs, SEBI regulations and its implications, and suggests strategies for faster and sustainable development or real estate and housing sector in India through the REIT route.