Everybody is aware of the unsystematic nature of the real estate sector in India. The financial year of 2016-17 has tried making some rules and regulations to increase transparency in the real estate sector. These include Real Estate (Regulation and Development) Act, 2016 (RERA) which will become active from 1st May. Apart from this the Real Estate Investment Trust (REIT) is another option which is becoming active to bring a change in the real estate sector.
REITs are investment weapons that are going to make investments in rent-generating and finished properties which are called RIET-able assets. REITs in India will be able to invest in commercial and residential properties both.
REITs can be formed by any voluntary sponsors who are mostly developers who hold RIET-able assets. SEBI had also passed some regulations in 2014 which formally allowed the formation of REITs and had also put various conditions on their working. But these regulations have been introduced to liberalization which allows more than one sponsor to invest in REITs in India. They are also allowed to invest in projects like hotels, hospitals etc. which was earlier prohibited.
Even after these efforts of liberalizing, some more efforts are needed to be made to make REITs in India look like a beneficial investment weapon. Laws related to tax also need to be modified to make the pass-through mechanism available.
It is very difficult to liquidate the real estate sector. Developers who will be investing through REITs will have the entry and exit in the development easier. Investors will also be able to invest in properties in a low-ticket manner only through REITs in India.
Foreign markets have clearly witnessed the success of REITs. And therefore, SEBI is trying to imply standards similar to the foreign markets, for the operations of Indian REITs so that they are in line with the global system. REITs are becoming a favourable option in the realty market.