Any Info on REIT ?

Discussion in 'Money Matters' started by Sumeru, Feb 25, 2008.

  1. Sumeru

    Sumeru New IL'ite

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    I've read recently of a new investment concept called REIT (Real Estate Investment Trust) thats been reviewed by SEBI. I believe its similar to mutual funds, but the units held will be invested in real estate. Does anybody have updates(benefits, implications, etc) on where we stand wrt this investment concept ? Any updates, details are welcome.
     
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  2. Shanvy

    Shanvy IL Hall of Fame

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    Sumeru,

    It was a proposal by SEBI in December, following the footsteps of other countries..but how far it will be a successs is to be seen....
    The SEBI proposal contained no mention of the kind of tax breaks expecting them to be made as sops in budget session..so let us wait till february 29th.

    My opinion, it would be risky one for india, the fund would attract HNI and also may trigger bubbles..the same as the speculation had taken Sensex to 21 and now at 16+..(this is my My 2cents)
     
  3. Sumeru

    Sumeru New IL'ite

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    Hi Shanvy,

    Thanks for the update. Ya, but considering the fact that things have cooled down in the equity and real estate markets, I doubt if we will have around of frothing. Have to wait and see.
     
  4. beenas64

    beenas64 New IL'ite

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    Shanvy, Sumeru,
    Real Estate experts say that the biggest event of 2008 could be the introduction of REITs. (Securities and Exchange Board of India) has finalized the guidelines, which were expected to be released to coincide with the Union Budget 2008. I think they will announce it separately when the tax complications in the REIT structure are ironed out.
    A REIT is a corporation or trust that uses the pooled capital of many investors to purchase and manage income-yielding property (residential, commercial, all kinds) or mortgage loans. While mutual funds provide a method and structure to invest in stocks, REITs will do the same in real estate ventures. I think the smallest ticket size is Rs 5 lakhs.
    REITs will be traded on major exchanges much like stocks. REITs will be provided with special tax considerations, which is one of the bones of contention. They are required to distribute 90% of their income, which will then be taxed at the hands of the investors.
    When you compare two REITs offering, look out for their NAV ( net asset value), AFFO ( Adjusted Funds From Operations-which is nothing but the cash flow coming in from their property investments, AFTER taking into account the recurring capital needed to maintain these properties) and how much cash is available for distribution as dividends to the investors.
    This simply means that if a REIT has invested into fast moving residential properties or into good commercial space which has tied up with good clients for long term rentals or has invested into good hospitality products with a regular stream of income then that is a good REIT, worth investing. (Let they come, we can take them apart in our forums, before investing!)
    “One of biggest advantage of the introduction of REITs will be that there will be more liquidity in the real estate sector. The assets will also become more easily trade able. FDIs and NRIs who are sickened by the black money culture in real estate and opaqueness will be able to enter the sector. Also to own a piece of real estate action, you need not have heavy money to participate.
    Many of our friends in this forum, keep talking about investing in landed properties in Chennai`s far away locations but have they really looked into the risk of not supervising the properties often enough? Unless you have a reliable person here in Chennai, far flung property investments could be risky, even though they seem attractive now. That is where REITs will prove worthwhile.
    Most importantly since a lot of properties could get listed (a representative listing through the REITs not the IPO listing we saw of DLF, Unitech etc) there will also be greater transparency in terms of valuations; so the stupid valuations of 2007 hopefully would not be repeated.
    With the introduction of REITs, the inflow of FDI into the sector is also expected to increase dramatically.
    Real Estate Observers are expecting some $12 billion (Rs47, 280 crore) coming into FDI-compliant projects in 2008.” That is a threefold increase from 2007 when $3 billion were committed by global investors for projects in India. But since our FM and RBI are wary about too much of FDIs coming in at this moment, we can expect stricter norms for FDI flows.
    I suspect this is what is keeping them from announcing the REITs! In some ways it is good because it will give time for land prices to stabilize-It is already happening in many micro markets- hopefully it will continue. Mind you, I am talking about stabilizing, not falling.
    Any which way I think FDI Investors and our own brethren from abroad should not expect more than 20% returns from REITs to begin with. The real gravy will come when the REITs become tradable- that is where we are going to see real profits.
     
    Last edited: Mar 2, 2008
  5. Shanvy

    Shanvy IL Hall of Fame

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    beenas64,

    Thanks for the detailed reply..let us wait and see, as you said....
     
  6. Sumeru

    Sumeru New IL'ite

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    Hi Beena,

    Thats a lot of info ! Thanks for the same and do keep us posted on any further update you come across.
     

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