Sebi brings in "acche din" for REITS

On Monday, Sebi (Security and exchange board of India) announced various measures in regards to REITs (Real estate investment trust).

Sebi has tried to make REITs more attractive to investors and real estate companies. The guidelines show that Sebi has focused on under-construction properties, special purpose vehicle (SPV), hotels, hospitals and convention centres and related party transactions.

It has proposed to enhance REITs by allowing investors to double their investment from the earlier 10% in under-construction properties. Also, keeping the rule as it is, Sebi stated that 80% investment in completed and rent generating properties will continue.

With respect to related- party transactions, the regulator said that REITs will not be obliged to buy or sell assets at prices recommended by independent valuers while undertaking related-party deals. 

Sebi also plans to ease the requirement of approval from 60% of unit holders for passing-related party transactions and 75% in case of special resolutions.

In its consultation paper, Sebi has proposed to ease the limitation structure of REITs in terms of special purpose vehicle (SPV).  Now, Sebi will allow REITs to invest in holding companies which have investments in other SPVs, which eventually hold the real estate assets.

As per Ministry of Finance, hotels, hospitals and convention centers are defined as infrastructure. Thus, such assets should come under the category of ‘real estate’ or ‘property’ under REITs as the intention is to include rent-generating properties. 

Additionally, Sebi relaxed minimum public holding requirements with Securities Contracts (Regulation) Rules (SCRR). Considering the nature of REITs and the asset base involved, Sebi felt that the marketing and selling an issue size of 25% in one bearing is not reasonable. Hence needed to be modified.

The regulator has also modified the minimum of '200 public investors only' at the time of initial offer.

Sebi also proposed to allow REITs to have five sponsors, as against the current requirement of three. 

Such moves are aimed at providing greater flexibility to the REIT manager in determining the composition of REIT and also help them enhancing the portfolio and the size of REIT by adding projects.