MUMBAI: The Securities and Exchange Board of India (Sebi) has relaxed rules on Real Estate Investment Trusts (REITs) by allowing them to invest more in under-construction , rationalised unit holder consent on related party transactions and removed restrictions on special purpose vehicle (SPV) to invest in other SPVs holding the assets.
The Sebi board has also approved changes to portfolio manager regulations to allow a foreign fund manager to relocate to India as an eligible fund manager. REITs are property trusts that pool investor money to invest in office buildings, shopping malls and rental housing.
Industry players said easing of rules will attract real estate developers and funds to launch REITs in India instead of Singapore. ET on June 16 reported that Sebi was likely to announce these measures after its board meeting on Friday.
“With these proposals, REITs may soon become a reality,” said Bhairav Dalal, partner-tax, PwC India. “Sebi has heard the industry players for fine tuning the regulations. These steps will help industry players in reaching a conclusion on REITs as an option much more efficiently.” The regulator said it would align the minimum public holding requirement with its listing requirement. “With a view to smoothen the process of registration of REIT with Sebi and also the process of launching of the offer, the Sebi Board has approved bringing out a consultation paper proposing certain changes and providing some clarification in the REIT regulations,” Sebi said in a press release on Friday.
Rationalising the unit holder consent for matters requiring their approval would ease administrative and governance burden under the current regulations and better align these regulations to other public market products like initial public offerings, experts said. Sebi has proposed to allow REITs to invest up to 20% in under-construction projects from the current 10%, a move that would help the trusts in exploiting developmental potentials in their assets better. “The modifications, especially allowing 20% assets to be invested into under-construction projects, will allow growth opportunities.
This will also help in optimising the potential investment opportunities into newer, under-construction and unbeatable assets,” said Vinod Rohira, MD-commercial real estate & REITs, K Raheja Corp. The regulator will also be putting out a consultation paper proposing certain changes in the portfolio manager regulations. It has proposed to insert a separate chapter on eligible fund managers. Lawyers said, however, unless tax rules are not changed it may not make much difference.
“Section 9A of Income Tax Act which provides for safe harbour provisions whereby an offshore investment fund having an Indiabased fund manager will not be regarded as a tax resident in India, constitutes several commercially impractical compliances as a result of which no benefit has yet been derived by the fund managers, which continue to be located offshore.
Since such liberalisation in absence of workable conditions has till been a nonstarter, hence proposed changes in portfolio managers regulations by Sebi may not be of much significance till the time the tax rules on safe harbours are further liberalised,” said Tejesh Chitlangi, partner, IC Legal.
Credits ET Realty