REITs not sure where to invest
The budget was a watershed for real estate. After years of regressive state and central regulations contributing to the stagnation of the sector, finally there was positive regulation in the form of real estate investment trusts (REITs) being opened up after almost six years since the first draft of the guidelines were released in 2008.
There is a compelling case for REITs to create a vibrant market for commercial real estate. Today, bulk of the developers shy away from commercial real estate primarily for two reasons firstly, it is not easy to sell in the absence of institutional investors or retail buyers.
Secondly, the opportunity cost of holding such assets for a developer is in early single digits versus residential development, which can yield upwards of 20 percent per annum. Even for buyers, REITs hold a lot of promise. Retail participation in real estate is an exciting prospect. With 33 percent savings rate, this reality may not be too far now.
It is still unclear as how much the REITs will be successful. Especially the investments need to be done in the right projects which are important to sort out first.
Source: Mint
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