Track2Realty: The announcement by the market regulator Securities Exchange Board of India (SEBI) to introduce a separate regulatory framework under the proposed draft SEBI (Real Estate Investment Trusts) Regulations, 2013 has brought cheers to the real estate sector. And if implemented, REITs can bring back the growth to the sector, said industry experts, who gathered at the RICS Real Estate Conference 2013 – Regaining Business Confidence. The conference was organized on 25th October 2013 in Mumbai.
Problems such as lower sales, cash flow crunch, expensive loans, high cost of labour and inflation are putting builders into a situation where they are forced to go for a better selling asset, where returns are high. But marked drop in demand for under-construction properties is visible across big and small cities in the country.
Therefore, there is an inventory pile up across cities and developers are unable to sell more. This is despite the fact that of all the supply coming in the market, almost 76% is in the residential segment, the remaining 24% in the commercial segment.
It is therefore imperative that the sector focuses on reforms driven agenda and bring back the demand for housing in the market. This can happen if there is timely delivery of projects and financing available for construction. And REITs have the potential to provide the required funding.
“As stakeholders in the sector, we need to take control of a few things – Bringing some financial discipline will help the sector revive the growth. As the sector companies currently have over-exceeded their requirement of debt, banks have reduced their lending. A number of companies operating in the sector do not have the capacity to take any further loan as they have over-leveraged the bank funding,” said Arun Nanda, Director, Mahindra & Mahindra Ltd. and Chairman, Mahindra Lifespace Developers Ltd. addressing the conference – Regaining Business Confidence.
Commenting on the implementation of REITs, Nanda added, “If REITs sees the light of the day, it will help the country to attract more foreign investments and domestic funding. However, we need to resolve the issue of double taxation as proposed in the consultation paper on draft SEBI (Real Estate Investment Trusts) Regulations, 2013. Otherwise, it will invite more litigations.”
Anshuman Magazine FRICS, CMD CBRE South Asia and Chairman, RICS South Asia Board said, “REITs once introduced will provide exit to a lot of funds that are planning to invest into the Indian market. In Asia Pacific alone, around $200 billion of REITs money is available. This can come into India, provided we give them an enabling environment.”
Experts added that the implementation will require the adoption of international valuation standards for evaluating the asset value for the computation of returns.
While the revival of the real estate sector in the country will take medium to long term, the market will also need other factors in addition to REITs to recover from the current slump, added the experts. In addition, the sector needs reforms such as the real estate regulation and land acquisition.
“Ongoing issues such as high inflation, large budget deficit and the slow pace of regulatory reforms are weighing down on business sentiment. The proposed regulations need to be implemented soon to revive the sentiments,” said Sachin Sandhir, MD, RICS South Asia.
