Saturday, October 01, 2016

REIT listings finally to come true in India

Recent media articles have quoted promoters /senior management of developers /sponsors putting a timeline for listing their rental portfolios. Our channel checks suggest some sponsors have started working towards filings with the regulator. Government has cleared many impending issues, mainly on taxation and what remain are state (local) subjects.

SEBI has allowed the REIT to invest in a two level SPV structure. This will save taxes at multiple levels as many assets are held in different SPVs, with different structures. This is beneficial for most of the developers. Allowing REITs to invest up to 20% in under-construction assets (from 10% earlier). Such a change will help bringing more assets under the REIT and also a possible increase in the yield as under-construction /un-leased area is usually brought at lower prices than a rent yielding asset.

Amending the definition of valuer. We believe Independent Property Consultants (IPCs) and real estate valuers will be included as not all practicing Chartered Accountants have the ability to provide fair value to real estate properties.Clarifying the definition of ‘real estate property’: The proposal was to include other rent generating assets like hotels, hospitals, warehouses etc., which otherwise are classified as infrastructure assets. Such inclusions will bring many more assets under the REIT.

Removing the limit of sponsors (currently up to 3) and introducing the concept of sponsor group. While developer sponsors won’t be affected by this; it could be beneficial for private equity, conglomerates and financial institutions having REITable assets.

We expect the first set of REITs to come from three or four unlisted developers /sponsors and together could raise between USD 1.2-1.6 bn (between 75-100 mn sq. ft of rental assets will be listed).

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