December 12, 2007
INDIA is poised to jump aboard the bandwagon of real estate investment trusts in what could be a major step in deregulating its burgeoning real estate market.
The Securities and Exchange Board of India is considering introducing REITs as early as next year, according to board chairman Meleveetil Damodaran. “The SEBI is interested in introducing REITs since it is an established product in some other markets and there is an appetite for such a product in India,” Mr Damodaran said.
While India will follow the lead of a number of European and Asian countries that have adopted the REIT structure of public ownership of real estate in the past few years, the discussions of the SEBI come at an interesting time. There is expected to be widespread interest in Indian REITs, thanks to robust growth. But REITs launched this year in Germany and Britain have taken a beating, partly because of the credit crunch. That serves as a reminder that REIT stocks, while attractive for their dividends, are not without risks for investors.
The establishment of an REIT industry would provide a badly needed capital infusion to India’s underdeveloped real estate market, which has been hobbled by foreign ownership property restrictions, some of which were lifted in 2005. If foreign investors are allowed to invest in Indian REITs, interest is expected to be high, due to India’s strong economic growth and rapidly growing real estate market.
It is estimated that real estate development in India could grow to $US90 billion by 2015 from $US12 billion in 2005. LaSalle Investment Management Securities has $US7 billion invested in global real estate securities, of which around 85 per cent is invested in REITs. It would consider investing in India’s public real estate market once it was large enough, said Todd Canter, a Baltimore-based global strategist for LaSalle.
While the structure of Indian REITs still had to be finalised, it was likely to be similar to that of British REITs, said Anurag Mather, head of real estate advisory firm Cushman & Wakefield in India. As in Britain – in contrast to the US – there is likely to be a limit on how much an Indian REIT can borrow. But investors in India will hope that REITs get off to a better start than they did when introduced in Britain and Germany this year. About 35 per cent has been wiped off the value of British REITs since they were launched in January.