Last year, SEBI began the process of formulating the guidelines for introduction of Real Estate Investment Trusts [See 'REIT is the new property investment strategy']. This is now complete and the SEBI (Real Estate Investment Trusts) Regulations, 2014 have been announced.
This is in addition to the Finance Ministry's proposal in the recent 2014-15 budget that REITs will be a pass through for the purpose of taxation; whereby capital gains and dividends would enjoy tax benefits similar to equities / equity-oriented mutual funds.
The key provisions of these recent SEBI regulations are as under:
1. REITs would be set up as a trust and registered with SEBI.
2. Commercial property would be the primary investment for such REITs.
3. REITs shall raise initial capital though IPOs (and later thru' FPOs, rights issue etc.) and the minimum subscription is presently fixed at Rs.2 lakhs.
4. The minimum issue size of the IPO is prescribed as Rs.250 crores.
5. It is stipulated that the assets owned or proposed to be owned by the REIT shall not be less than Rs.500 crores.
6. Units of REITs would to be listed on the stock exchange and the trading lot is currently fixed at Rs.1 lakh.
7. At least 80% of the corpus would have to be invested in ready properties only, which can generate immediate revenue.
8. Investment in under-construction properties, mortgage-backed securities, debt / equity of companies in the real estate sector, Govt securities and money market instruments / cash equivalents shall not exceed 20% (subject to the investment in under-construction properties not exceeding 10%).
9. REITs shall have to invest in at least 2 properties with investment in one property not more than 60% of the corpus size.
10. Not less 90% of the distributable cash flows would have to be distributed as dividend at least every 6 months.
11. Borrowings by REITs shall not be more than 49% of the total value of the assets. Further, borrowings in excess of 25% shall be with the prior approval of the unit holders and credit rating would be necessary.
As you would note from the above details, the initial form of REIT proposed to be introduced focuses on
(a) Somewhat High Net Worth individuals and
(b) Generating regular income vis-a-vis long term capital appreciation.
As the concept of REIT matures, varied other forms and targeted at the retail investors can be expected.
This is in addition to the Finance Ministry's proposal in the recent 2014-15 budget that REITs will be a pass through for the purpose of taxation; whereby capital gains and dividends would enjoy tax benefits similar to equities / equity-oriented mutual funds.
The key provisions of these recent SEBI regulations are as under:
1. REITs would be set up as a trust and registered with SEBI.
2. Commercial property would be the primary investment for such REITs.
3. REITs shall raise initial capital though IPOs (and later thru' FPOs, rights issue etc.) and the minimum subscription is presently fixed at Rs.2 lakhs.
4. The minimum issue size of the IPO is prescribed as Rs.250 crores.
5. It is stipulated that the assets owned or proposed to be owned by the REIT shall not be less than Rs.500 crores.
6. Units of REITs would to be listed on the stock exchange and the trading lot is currently fixed at Rs.1 lakh.
7. At least 80% of the corpus would have to be invested in ready properties only, which can generate immediate revenue.
8. Investment in under-construction properties, mortgage-backed securities, debt / equity of companies in the real estate sector, Govt securities and money market instruments / cash equivalents shall not exceed 20% (subject to the investment in under-construction properties not exceeding 10%).
9. REITs shall have to invest in at least 2 properties with investment in one property not more than 60% of the corpus size.
10. Not less 90% of the distributable cash flows would have to be distributed as dividend at least every 6 months.
11. Borrowings by REITs shall not be more than 49% of the total value of the assets. Further, borrowings in excess of 25% shall be with the prior approval of the unit holders and credit rating would be necessary.
As you would note from the above details, the initial form of REIT proposed to be introduced focuses on
(a) Somewhat High Net Worth individuals and
(b) Generating regular income vis-a-vis long term capital appreciation.
As the concept of REIT matures, varied other forms and targeted at the retail investors can be expected.
