The union cabinet on Wednesday approved the Real Estate Investment Trusts (REITs) as an eligible financial instrument/structure under the Foreign Exchange Management Act (FEMA) 1999.
The approval is expected to enable foreign investment inflows into the completed rent yielding real estate projects, which is, as of now, prohibited under the FEMA Regulations.
The decision was taken at a cabinet meeting chaired by Prime Minister Narendra Modi.
As a result of this decision, entities registered and regulated under the SEBI (REITs) Regulations 2014 will be able to access foreign investments which as of now are prohibited under the FEMA Regulations.
The intent of introducing the instrumentality of REITs is to reduce pressure on the banking system to which the real estate sector looks for funds, free up existing funds of banks and encourage construction activities.
REITs while attracting long term finance from foreign and domestic sources including NRIs would make available fresh equity to the sector.
The finance minister in his budget 2014-15 speech proposed the introduction of REITs.
The REITs have been found to be successful instruments for pooling of investment by several countries for investments in real estate, with a view to earning income and distributing earnings from its investments to investors, who have contributed to the pooled corpus.