For every stakeholder in the Indian real estate industry, the gloomy scenario that currently prevails with regards to structured funding into the sector is an area of deep concern. The World Economic Forum is a good opportunity to obtain answers; I was fortunate enough to engage Finance Minister P. Chidambaram in a private conversation. I was particularly interested in his views on REITs (Real Estate Investment Trusts) in India.
We were both pressed for time, but he was refreshingly candid, forthcoming and obviously very informed. The conversation was very thought-provoking, especially since he was happy to discuss such matters of great pertinence to Indian real estate. I came away with a fresh perspective on the nuances of government administration, and also with mixed feelings about the prospects for REITs in India.
REITs are an important ingredient of a more convincing revival for Indian real estate. While this progressive model of funding has been waiting in the wings for a long time, SEBI has in fact been aiming to see REITs launched in India in the 2014 budget.
REITS will bring in an additional funding mechanism into the cash-starved real estate sector and also provide an additional means for investors to invest via a structured channel, similar to more mature markets such as Australia, UK and Singapore. Yet, it has not yet been adopted in India – a market that is obviously in great need for such a mechanism. My mixed feelings stem from the fact that there have been many false signals of hope on this front in the past.
However, the tax structures that will need to be placed if REITs are to be successfully launched in India are still awaiting necessary approvals. As such, their launch in this year’s budget is somewhat unlikely, given that it just might be an interim one.
Can we look at 2015 as a possible launch year? The prospects for REITs becoming a reality under the new government’s budget for 2015 are actually quite good. In case there is no scope for REITs, I get the impression that SEBI will seriously evaluate alternate real estate investment products. One way or the other, there is no lack of awareness about real estate being an important economic driver in India – and this awareness will doubtlessly crystallize into fuel for the engine.