The Securities and Exchange Board of India’s (SEBI) has approved the creation of real estate investment trusts (REITs) and infrastructure investment trusts for the first time in the country.

SEBI also lowered the threshold for the size of individual property assets eligible to be listed under the REIT regime, from INR1000 crores (€123m) to INR500 crores.

CBRE said it was a good sign for India’s property sector and the lower limit would encourage local developers to embrace the new regime. 

But the consultancy warned that more clarity was urgently needed on the tax structure. Success of the new market would also depends on having a clear regulatory regime and increasing the supply of investible assets, it added.

Anshuman Magazine, chairman and managing director of CBRE South Asia, said: “This move is a positive signal for India’s capital markets as a whole, and the realty sector in particular.”

”Reducing the minimum requirement for commercial real estate asset sizes… is likely to generate more income through this new funding channel and encourage many mid-sized development firms to consider this avenue,” he said.

Although the government had already clarified that Indian REITs would be given ‘pass-through taxation status’, he said that clarifying the tax structure was of high importance at the moment.

“A successful India REIT market will require strong support from existing landlords and investors, as well as favourable market conditions,” Magazine said.

All in all, the establishment of the REIT market in India was still nascent, he said. Successful implementation and development would rest on a number of factors related to the regulatory environment, market conditions and issuers and investors, he said.

In a report, CBRE said a successful REIT market would require strong support from existing landlords, as potential issuers, and investors as well as favourable market conditions.

Although performance of some commercial property hubs across India was picking up, there were still concerns about stagnant rental growth and oversupply.

The Indian REIT market needed to be seen as competitive regarding pricing and asset quality compared to the direct real estate market and other investment asset classes, the report concluded.

Topics

Related Companies