Home News High level of compliance for REIT may deter small developers

High level of compliance for REIT may deter small developers

According to a CRISIL report, high level of compliance and stringent regulatory requirements for REITs may deter the developers with smaller commercial portfolios to adopt this route to raise funds. These developers may continue to use lease rental discounting loans which can provide funding of 5-6 times the net lease income and are accessible at rates as low as 9% currently, says the report. It should be noted that SEBI board has kept the minimum asset sizes to be invested in at Rs 500 crores to ensure that only well established players will float REITs. As a result, small time players will not be able to use this mode till they grow to a reasonable level.

Real estate investment trust (REIT) is a company that owns, and in most cases operates, income producing real estate. It provides an additional investment avenue for the Indian investors. The REIT method was approved by the Securities and Exchange Board of India (SEBI) in 2014 and like mutual funds, REIT can help to pool money from all investors across the country.

Real Estate Investment Trusts (REITs) operate almost like a mutual fund by pooling funds from investors and investing them in real estate assets. REITs are investment trusts that work similar to mutual funds with the only big difference being that instead of using the money collected from investors to buy stocks and bonds, in case of REITs capital is deployed to own real estate assets.

However, CRISIL report says the fragmented and opaque real estate market could pose a hindrance to the expansion of the REIT market in India. Further, REITs currently limit the access of banks and insurance companies to the real estate sector. Also, that section of the developers who prefer to retain the capital appreciation opportunity and not dilute their stake may not favour REITs.

Till date, only a few REITs have entered the market and developers may be doing a wait and watch game and a few more successful REIT issues may attract other developers too into this mode of fund raising.




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