The formation of REITs – funds that own real estate but have shares that are listed on the stock market – will encourage the creation of big-ticket institutional-grade buildings, and will give developers a ready outlet for development projects.
With the stamp of approval by SEBI, REITs are finally a formalized concept. This is a big change from the ambiguity and uncertainty that prevailed about this very important instrument in previous years. It is gratifying to note that SEBI fully intends to deliver on its assurances of bringing better and faster funding into Indian real estate.
Real estate is a business that requires regular funding, be it at the acquisition or execution stage. To raise funds, developers in India opt for modes like joint venture, pre-sale and construction finance. Construction finance can work out cheaper but is difficult to obtain because of the strict guidelines laid down by the Reserve Bank of India. Other routes are relatively easier but cut into a developer’s profits, since they involve sharing approval as well as execution and marketing risk for the project.
Where should I invest my money – in a bank or in property, business, gold, stocks or REITs? Many of us have asked that question of both experts and ourselves. These kinds of questions do not seem to have an all-time correct answer, nor do they have a universally correct answer.
REITs and the associated changes in the legislature need to find a place on a priority list that aims for larger developments and subsequent employment creation.