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REIT investment cap may be cut to ease retail flows

REIT investment cap may be cut to ease retail flows

06 Apr 2021

MUMBAI: India’s market regulator is weighing a proposal that seeks to reduce the minimum investment limit in real estate investment trusts (REIT) to facilitate retail participation in this asset class, especially at a time when New Delhi is keen to monetise some of its income-earning properties.

While the current floor is Rs 50,000, the threshold could even be halved. The government is in consultation with the Securities Exchange Board of India (Sebi) regarding the proposal.

Sebi did not immediately reply to ET’s query.

“A proposal has come from market participants and the proposal is currently under consideration. However, a decision is yet to be taken on the size of the reduction and the precise timeline,” a regulatory source, with knowledge of the matter, told ET.

The move, if successful, will result in greater retail investor participation in a wider range of financial products, enabling them to build a more balanced and diversified portfolio, industry sources told ET.

JLL, a global real estate service firm, said that India’s current office markets across seven major cities have a potential space of 284 million sq. ft that could be securitised with an estimated value of $36 billion.

The proposal comes at a time when a corpus of at least $2.5 billion is set to be raised in fresh REITS in the next two years. The three listed REITS – Embassy, Mindspace and Brookfield India – have a combined market capitalisation of over $7 billion.

In April 2019, Sebi had reduced the lot size of InvITs to Rs 1 lakh and REITs to Rs 50,000. Since inception, Indian REITs, InvITs and their sponsors have raised nearly Rs 40,000 crore from the equity markets, signalling investor confidence in a new asset class that’s considered moderately risky.

Globally, REIT and InvIT trading lots tend to mirror those of listed companies, according to the Asia Pacific Real Assets Association (APREA). In most markets, InvITs/REITs and listed companies trade in equivalent lots or share sizes. REITs/InvITs have long been included in global equity indices to enable both institutional and retail investors to allocate capital to the real assets sector in an efficient manner.

“A reduction in lot size could enhance trading liquidity,” said Sigrid Zialcita, CEO, APREA, an industry body. “This will also enable broader retail investor participation as the structure gained acceptance among institutional investors and high net worth investors.”

APREA has made several representations to the government authorities on the matter.

“REIT provides retail investors with an exciting growth opportunity through additional development and acquisitions as they (projects) progress to completion,” said Vikaash Khdloya, deputy CEO and COO, Embassy REIT. “Access to this growth vehicle, thus far limited only to the largest investors, will drive the continued trend of retail participation in REIT in India.”

Embassy, backed by the world’s largest alternative asset manager, Blackstone, was the first Indian REIT to be listed. This year, it has declined more than 8%, compared with a 4% rise in the BSE Realty index.