Business Standard

Reits seek ‘equity’ label, option to take loan from banks


- ABHISHEK KUMAR Mumbai, 20 March

Real estate investment trusts (Reits) are in talks with regulatory bodies — the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) — to seek changes in regulation­s that will allow easier access to capital.

The Indian Reits Associatio­n (IRA) said it has approached the market regulator seeking to get classified as an ‘equity’ asset, which will open the path for their inclusion in equity indices and also make investment by mutual funds (MFS) easier.

The associatio­n is also in active discussion­s with the RBI to allow banks to lend to a Reit. At present, they borrow mostly through bond issuances or from non-banking financial companies. They said the opening up of the bank borrowing channel will help bring down the cost of borrowing.

“The top three on our agenda is to work closely with the RBI to get banks to lend to Reits, get clarity on equity classifica­tion and subsequent inclusion in indices to enhance liquidity. The third is investor education,” said Aravind Maiya, chief executive officer (CEO) of Embassy Reit and the chairperso­n of IRA.

At a panel organised by the IRA, executives said that the classifica­tion of Reits as equity will bring in more clarity for investors apart from opening new avenues for inflows through both active as well as passive MFS.

“Globally, Reits are generally classified as equity. There are quarterly or six-monthly payouts, but they are subject to the performanc­e of the underlying assets. Also, there is capital appreciati­on. These are more of an equity-like feature and hence Reits should be classified as equity,” said Alok Aggarwal, managing director and CEO of Brookfield India Reit.

Currently, active MF schemes have some leeway to invest in Reits and infrastruc­ture investment trusts. Several schemes have the provision to invest up to 10 per cent of the corpus in these asset classes.

The newly formed associatio­n said it aims to play a role similar to the Associatio­n of Mutual Funds in India to drive penetratio­n and investor awareness. IRA also sees the MF investor base of 40 million as an addressabl­e market. At present, there are around 200,000 Reit investors.

“Given the over 40 million pool of MF investors, there is no reason why the number of Reit investors cannot grow exponentia­lly in the coming years,” said Dalip Sehgal, CEO of Nexus Select Trust.

Reits are at a nascent stage in India with the first listing happening in 2019. There are four listed Reits currently — Brookfield India, Embassy, Mindspace Business Parks, and Nexus Select Trust.

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