On October 10, Securities and Exchange board of India (Sebi) released consultative guidelines for the operation of REIT, five years after delivering its first draft on the subject, in 2008.
Currently, individuals either have to invest in property directly, or through closed ended funds with a minimum transaction size of Rs. 1crore. With REIT you could invest with small sums, receiving proportional returns.
Once the Real Estate Investment Trusts come into effect, individuals can invest in property funds even with small sums of money.
A question playing on the mind of many buyers and investors today is – Is this is the right time to purchase real estate? Given the economic slowdown, high inflation and interest rates and political uncertainty, the overall sentiment running among the consumers is negative.
However, at any given time, the suggestion for end users would be anytime you have the propensity to save and spend will be the right time to invest in real estate, say experts. The market has witnessed a slowdown in terms of price. Yet, the mid-income group is witnessing a stable and robust demand as the trend of urbanization continues. Massive demand is available so definitely this is the right time to buy. The conversions may have reduced but the end user is still looking for good options to invest in.
“The transaction from the investor’s end has witnessed a cutback but now is a great time for an investor to tap on the rental opportunity. Investor does not know where the market will bottom out; therefore it is an attractive time to invest when the market is still low compared to other times”, says Percy S Chowdhry, Director, Rustomjee Group.
On 10 October 2013, the Securities and Exchange Board of India (Sebi) issued a consultation paper on draft Real Estate Investment Trusts (REITs) Regulations, 2013. Once it has received feedback from the public, the regulator will come out with the final regulations on REITs. Thus, it appears that after a long wait REITs may finally start operating in India soon.
Asset allocation requires rebalancing, which means that every six months or so, you sell a part of the asset class that has outperformed and buy more of the asset class that has under-performed. At present it is impossible to apply the asset allocation strategy to real estate. Suppose you buy a second house for investment. Since the ticket size is large, in case of most investors the house comes to occupy an overwhelmingly large portion of their investment portfolio.
With the Securities and Exchange Board of India (Sebi) proposing to allow Real Estate Investment Trusts (REITs) in the country, the stage is set for investors to tap the real estate sector. Globally, these are common investment vehicles which pool investors’ money and invest in revenue generating assets, such as building, offices, warehouses and malls, and distribute a major part of the earnings among the investors.
A KPMG research note said the Sebi move will revive substantial investor interest in India’s subdued real estate market. “REITs are a positive move towards a more professionally organised and globally well accepted framework for funding real estate development. The move will also reduce individual speculation in real estate assets,” the note said.
The trend of buying ‘second’ homes or weekend getaways in Mumbai’s peripheral areas and beyond has been gaining ground in recent years. With rising real estate prices in the prime areas, second home provides a good opportunity for investment.
Moreover, many second home destination have evolved and transformed into first home destinations, making the scope for returns on investment even higher.
In its bid to control the outflow of capital from the country, RBI slashed the annual cap on automatic outflows from $200,000 to $75,000 for an individual. Along with it, a ban has been imposed on overseas real estate purchases with immediate effect. (Above) A bird’s-eye-view of South Mumbai real estate.
RBI curbs on overseas property investments to protect the rupee seems to be good news for Indian real estate as capital which otherwise would have been diverted abroad will now stay in the country.