On 10 October 2013, the Securities and Exchange Board of India (SEBI) issued draft Real Estate Investment Trusts (REITs) Regulations, 2013. REITs pool investment, like a mutual fund, but invest primarily in real estate of completed and revenue-generating properties. The rentals received from these properties are distributed among investors as dividend. Each investment in real estate is large. REITs are a means for people to invest smaller amounts in real estate and also achieve portfolio diversification.
SEBI has mandated that at least 90% of the value of an REIT’s assets shall be in completed revenue-generating properties. No REIT will be allowed to invest in vacant or agricultural land or mortgages other than mortgage-backed securities. To provide flexibility, REITs can invest 10% in other assets as specified in the proposed regulations—under-development properties, listed or unlisted debt of companies, mortgage-backed securities, equity shares of companies deriving not less than 75% of their revenue from real estate activities, government securities, money market instruments or cash. It has been specified that the size of assets under management of the REIT should not be less than Rs1,000 crore. An REIT can invest its entire corpus in one project only if the size of the project is at least Rs1,000 crore. For investors, minimum subscription shall be Rs2 lakh while the unit size shall be Rs1 lakh.
Not less than 75% of the revenues of the REIT, other than gains arising from disposal of properties, shall be from rentals, leasing and letting out real estate assets, at all times. To ensure regular income to investors, at least 90% of the net income after tax has to be distributed to the investors.
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