Dawn for REITs in India: SEBI issues consultative paper on Draft SEBI (Real Estate Investment Trust) Regulation, 2013

SEBI has finally released the CONSULTATIVE PAPER on the draft regulation for paving the way for the introduction of Real Estate Investment Trust (REIT) in India. SEBI had, in 2008, issued the first draft regulation for introduction of REITs but since then nothing happened. Finally, SEBI has woken up and issued a consultative paper in order to introduce REITs.

Now, let’s understand what exactly REIT is and how it functions. Real estate investment trusts (“REITs”) allow individuals to invest in large-scale, income-producing real estate. A REIT is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Further, these REITs are publicly traded on recognized stock exchanges. Globally, REITs have been a key driver towards development of the real estate sector, by providing a platform for retail and institutional investors to invest in real estate properties, with the benefits of a regulated structure and risk diversification. The opportunity to take an interest in completed and yield generating real estate assets with the option to obtain regular flow of income from REITs, makes them a popular instrument amongst investors.

STRUCTURE OF REIT IN INDIA

The draft regulation envisage a REIT as a trust set up under the provisions of the Indian Trust Act, 1882 which would raise funds through an initial public offer and be listed on stock exchanges. Further, REITs are required to invest at least 90 % of their funds in completed and rent generating properties. Also, the roles and responsibilities of various key parties to a REIT such as Trustee, the sponsor, the manager and the Principal Valuer appointed by manager are set out in detail.

The Real Estate (Regulation and Development) Bill, 2013

[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha. He can be contacted at rishabh.a.09@gmail.com] 

The Real Estate Regulation and Development Bill, 2013 has been approved by the Union Cabinet on June 4, 2013 after much delay and deliberation. The bill has yet to be approved by the Parliament i.e, Lok Sabha and the Rajya Sabha. After this, the bill would become statute once it receives the presidential assent. Separate Real Estate Bills have been formulated by Maharashtra and Haryana State Governments. Therefore, when enacted, the Central Act would prevail over any State legislation and any provisions repugnant to the Central Act would be void. 

The Bill is aimed at regulating the largely unregulated real estate housing sector. It envisages the creation of a Real Estate Regulatory Authority [hereinafter “Authority”] and an Appellate Tribunal which would act as a watchdog for the housing sector, predominantly towards safeguarding and protecting consumer interests. Also, creation of the tribunals would act as an effective redress mechanism for any disputes. 

The Real Estate Bill envisages providing effective and efficient regulatory framework and environment in the real estate sector which is laced with illegal and black money, corruption, land mafias and red tapism.