Indian real estate sector can be improved by REIT: Knight Frank
A report by Knight Frank Research has found that Technical Group on the Estimation of Housing Shortage has claimed that India has shortage in fresh supply of properties and the number has gone up to 18.78 million in 2012.
The slum population is approximated at 94.98 million in 2012 which is more as against mere 1.6 million dwelling units sanctioned by JNNURM in seven year mission period.
The report also spoke about the future where it forecasted about 600 million citizens in urban areas would come up which is around 200 million in just 20 years. This change in the socio-economic landscape will have a bearing on several things, housing being the foremost.
The Indian real estate sector facing continuous pressure in terms of raising funds for development can be minimised by having a Real Estate Investment Trust (REIT). A REIT is a company that directly owns income producing real estate assets and provides trading mechanism to the investors.
Experts say that REITs can provide steady supply of capital to real estate development in India which shall aid in increasing the supply of houses and also it shall serve as an investment vehicle for individuals who are interested in investing.
India has been slow in raising find through REIT lately. Securities & Exchange Board of India (SEBI) had issued draft REIT Regulations in 2008. However, things have not moved since that time.
One of the main reasons is its association with another set of guidelines for Real Estate Mutual Funds (REMF) in 2008. There has been confusion because of the same. The later has also not translated into product offerings yet. This confusion arises from the fact that both would regulate a similar product. Also, there has been lack of transparency and uncertainty in real estate in India.
In the World Bank report, India comes in the 182nd number out of 185 countries in case of dealing with construction permits.
Some real estate developers in the country have already listed their REITs in foreign countries due to lack of REIT guidelines in India. These investment vehicles invest in FDI compliant properties in India and hold both commercial and residential properties mainly at the development stage.
These foreign based schemes are applied on properties located in top urban centers like Delhi-NCR, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad and Pune. However, these schemes were used before the global financial crisis and the investors are yet to see meaningful returns from these investments.
The reports also suggest that in light of the dwindling interest among investors to invest in Indian real estate, such a mechanism is important.
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