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New REIT norms to boost realty market

Relaxation of norms in Real Estate Investment Trusts will pull in more mid-segment investors to park their money in the property market

The realty sector has much to cheer about government’s new policies that remove hurdles in real estate investment and offers easy norms to attract small investors. In the recent past, the government has taken several attempts to revive the realty market that has been reeling under tough times for many years.

While making reforms in Foreign Direct Investment (FDI) rules, government has allowed 100 per cent inflow in civil aviation and food processing sectors. The government has also announced relaxation in Real Estate Investment Trust (REIT) rule which will facilitate more investment into the real estate sector.

What was the old provision?

To broaden opportunities for small-scale domestic investors into the real estate market, the government formulated REIT in 2014. It operates like a mutual fund where investors park their money and get exchange units that could be retail, office spaces or malls.

When constituted, the Securities Exchange Boards of India (SEBI) imposed strict rules and regulations on REIT which prohibited investors with low capital and could only invest in commercial projects that can generate revenue for sure.

In the 2016 Union Budget, Finance Minister Arun Jaitley removed the tax hurdle in the way of REIT, given incentives to first-time home buyers and tried to make affordable housing more feasible.

What are the new amendments made to the REIT regulation?

  • Investment percentage increased: The new amendment gives freedom to REITs to invest more in under construction projects. Under the earlier provision, they could invest only 10 per cent in ongoing projects. Now this has been raised to 20 per cent which is likely to lead to an increase in potential yield returns.
  • New law for Special Purpose Vehicles (SPVs): SEBI removed the restriction on special purpose vehicles (SPVs) and allowed REITs to invest in other SPV-holding assets.
  • Foreign fund manager issue resolved: Earlier, business to India was subject to certain criteria, including the Eligible Fund Manager getting registered with SEBI. Now the registration process has been reviewed for the overseas fund managers who want to relocate to India and also their obligations and responsibilities have been fixed. They would not be required to comply with certain provisions related to audit of overseas fund.

Realtor fraternity has welcomed this move hoping that all these amendments will boost realty market in India and encourage more and more investors to invest through REITs which is emerging as a best option for those who are willing to park their money and earn profit out of that.

The government’s decision to allow 100 per cent foreign investment will definitely bring more capital in the market and encourage mid-segment investors. Sectors such as food processing, aviation and defence will see greater inflow of foreign investment which is going to impact overall economy of the country. The growth of these sectors is directly proportional to the real estate market in India, which will the boost the market at large scale. Moreover, the relaxation in REIT rule will ease the investment process especially in commercial sectors,” said Sunil Kumar, an advocate in the Delhi High Court.