India Sets Norms to Open $20 Billion REIT Market 

India approved the setting up and listing of real estate investment trusts as the nation seeks to unlock a $20 billion market.

The trusts, or REITs, will have to own assets worth at least 5 billion rupees ($82 million), the Securities and Exchange Board of India said in New Delhi yesterday.

The introduction of REITs will provide a new source of funding for cash-strapped developers that are struggling to reduce debt amid one of the highest interest rates in Asia and economic growth near the lowest in a decade.

“The sector has been in all sorts of trouble primarily due to high leverage for most of the developers,” Pramod Gubbi, director for institutional sales at Ambit Capital Pvt., said in an interview to Bloomberg TV India.

The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd.

“It’ll also provide liquidity to investors as these trusts will be listed and traded on stock exchanges,” Neeraj Bansal, partner and head of the real estate and construction practice at KPMG India, said in an e-mail.

While the market regulator had released the first draft of guidelines for REITs in 2008, they didn’t get final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June.

 

Source: bloomberg

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