NRI Real Estate and Property Investment in India
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REITS to grow Globally at Usd 1,400 Billion: Assocham-Crisil
Saturday, April 05, 2008

The Real Estate Investment Trusts (REITs) would have potential to hold at least 5% share of the total global real estate market by 2010, the size of which would turn to USD 1,400 billion in next 3 years, according to joint paper prepared by the ASSOCHAM and CRISIL.

The paper namely Indian REITs ; Are We Prepared, says that by 2010, REITs alone would hold a market size of USD 70 billion of the total real estate market as its concept is gaining ground in countries like India and other developing nations. The basis for the projections is based on gross state domestic produce (GSDP) estimates for 2003-04 and an average annualized yield of 10%.

In Indian context, REITs can help provide an exit route for developers to revolve fund more efficiently and will provide opportunities to retail investors to participate in the real estate sector and provide asset diversification to corporate investors, besides building a vibrant secondary real estate market.

Releasing the paper, the ASSOCHAM president, Venugopal N. Dhoot said that currently only venture capital funds have been allowed to offer real estate funds. The venture capital arms of HDFC, Prudential ICICI, Kotak Mahindra, IL&FS, Kshitji Venture and real estate mutual funds (REMFs) are currently available, most of them, only to high net worth individuals and institutional and global investors. According to SEBI regulations, individual investors in a REMF must invest at least USD 11,500. The current players, however, have set the minimum contribution at far higher levels.

The global REIT market comprising 491 REITs in 19 countries of which the US still accounts for over half of the global REIT market (53.2%), although this percentage has been declining as a result of conversion of public REITs to provide REITs in the US and REIT IPOs elsewhere. The growth of increased profits of REIT markets has led to an increased level of specialized global REIT funds being launched.

Australia is considered to be the largest REIT market after the US; more than 12% of global listed property trusts can be found on the Australian Stock Exchange (ASX). The country is one of the oldest and least restrictive of the listed property trust (LPT) markets in the world. Australia`s market is not stringently regulated compared to other global REIT systems, evidenced by there being no listing requirements, gearing or interest coverage limits, limits on developments and restrictions on diversification, ownership or management etc. Australia launched its first LPT in 1971 and in the last 35 years has experienced very successful growth; the quantum of listed and unlisted REITs under management has increased by 29% to reach USD 285 billion, now nearly 13 million investors in 2007.

Some key drivers in the success of LPTs in Australia are transparency of information ? all investors (retail and institutional) have access to a wealth of data to enable informed investment decisions, brokers specializing in LPTs/REITs who have come up due to the success of this asset class and is self-perpetuating the success and securitization which has allowed retail investors access to such assets which were hitherto out of reach.

In France, the 2003 Finance Bill opened the door for REIT style investments by allowing real estate companies listed on the French stock exchange to convert into `Societies Investments Immobilizers Cotees (SIIC) and becomes eligible for tax exemption on rental income and capital gains.

REITs were launched in the UK in 2007 and real estate investments are done through `Pooled Managed Vehicles (PMVs). While these are different from Open-ended Investment Companies (OICs), they can be in the form of Trusts. The regulator for these PMVs is the Financial Services Administrator (FSA), as is the case for OICs. They, however, can have variable capital and are similar to open-ended mutual funds. PMVs get tax benefits based on the investor profile; at least 75% of the PMV`s total profits must be derived from the property business.


 

 

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