KPMG FLASH NEWS
KPMG IN INDIA

Draft SEBI REIT Regulations for public comments
14 October 2013

Background
India’s real es...
 Offer of units to the public and listing of units
 REITs can raise funds through initial offer and followon offers post...
 In case of co-investment with any person, few
conditions are specified which, inter alia, includes that
the investment b...
www.kpmg.com/in

Ahmedabad
Safal Profitaire
B4 3rd Floor, Corporate Road,
Opp. Auda Garden, Prahlad Nagar
Ahmedabad – 380 ...
Upcoming SlideShare
Loading in...5
×

Draft SEBI REIT Regulations for public comments

734

Published on

India’s real estate sector has witnessed rapid growth in recent years underlined by robust economic growth in the country. Real Estate Investment Trusts (REITs) are common investment vehicles globally which pool monies of investors and invest primarily in completed, revenue-generating real estate assets (such as buildings, offices, warehouses, malls, etc.) and distribute a major part of the earnings among the investors. REITs are critical as they provide an exit avenue for the developers of commercial properties who can channel such monies to further commercial projects.

Previously, the Securities and Exchange Board of India (SEBI) had attempted to introduce REITs in India wherein it had issued draft regulations in 2008 but withdrew it later. Further, when the concept was revisited again, SEBI was more in favour of the mutual fund model for real estate investment. However, the same also could not materialise.

Recently, SEBI has issued a press release wherein it has revived an over five-year old proposal of REIT by issuing draft SEBI (Real Estate Investment Trusts) Regulations, 2013. Public comments have been invited on the same by 31 October 2013.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
734
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
39
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Draft SEBI REIT Regulations for public comments

  1. 1. KPMG FLASH NEWS KPMG IN INDIA Draft SEBI REIT Regulations for public comments 14 October 2013 Background India’s real estate sector has witnessed rapid growth in recent years underlined by robust economic growth in the country. Real Estate Investment Trusts (REITs) are common investment vehicles globally which pool monies of investors and invest primarily in completed, revenue-generating real estate assets (such as buildings, offices, warehouses, malls, etc.) and distribute a major part of the earnings among the investors. REITs are critical as they provide an exit avenue for the developers of commercial properties who can channel such monies to further commercial projects. Previously, the Securities and Exchange Board of India (SEBI) had attempted to introduce REITs in India wherein it had issued draft regulations in 2008 but withdrew it later. Further, when the concept was revisited again, SEBI was more in favour of the mutual fund model for real estate investment. However, the same also could not materialise. SEBI has recently issued a press release wherein it has revived an over five-year old proposal of REIT by issuing draft SEBI (Real Estate Investment Trusts) Regulations, 2013 [SEBI (REIT) Regulations]. Public comments have been invited on the same by 31 October 2013. Key highlights of the draft SEBI (REIT) Regulations are provided below:  Structure of the REIT  The REIT shall be set up as a Trust and shall not launch any schemes.  The relevant parties in a REIT structure would be trustee (registered with SEBI), sponsor and manager.  The REIT is required to be registered with SEBI. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  2. 2.  Offer of units to the public and listing of units  REITs can raise funds through initial offer and followon offers post listing.  REIT should come out with initial offer within 18 months of registration with SEBI.  It would be mandatory to list all units of the REIT after the initial offer.  REITs should have minimum asset size of INR 10000 million.  The initial offer size should be of INR 2500 million.  The minimum public float should be 25 percent of the value of the REIT.  Key eligibility criteria for Sponsor and Manager of REIT Sponsor  Sponsor should have minimum networth of INR 200 million on a consolidated basis.  Sponsor should hold at least 25 percent of the total units of the REIT prior to initial offer.  Minimum holding of 25 percent of the sponsor will be locked in for three years from the date of listing and balance holding will be locked in for one year.  Sponsor should hold at least 15 percent of the outstanding units of the REIT at all times. If sponsor proposes to sell the units below 15 percent after three years from the date of listing, it shall arrange for other person / entity to act as the re-designated sponsor.  Sponsor should have atleast five years of experience in the real estate industry on a standalone basis.  Eligible Investors  REITs may raise funds from any investor, whether resident or foreign (subject to guidelines specified by RBI and government). However, initially, till the market develops, it is proposed that the units of the REITs may be offered only to HNIs / institutions and therefore, it is proposed that the minimum subscription size shall be INR 2 lakhs per investor and the unit size shall be INR 1 lakh.  REITs should have a minimum of 20 investors (other than related parties).  Investment conditions and dividend policy  Investment by a REIT shall only be in properties or securities in India − At least 90 percent of the value of the REIT assets shall be in completed (i.e. occupancy certificate received) and rent generating properties (i.e. 75 percent rented / leased out); and − Balance can be invested in the specified assets [like developmental properties, listed or unlisted debt, mortgage backed securities (MBS), equity shares of real estate companies, government securities or money market instruments, etc, subject to specified conditions].  REITs will not be permitted to invest in vacant land or agricultural land or mortgages (other than MBS).  REITs will be permitted to invest in properties through a Special Purpose Vehicles (SPV) if SPV holds atleast 90 percent of their assets directly in specified real estate properties and REIT has control over the SPV. Manager  Manager should have minimum networth of INR 50 million.  Manager should have atleast five years of specified relevant experience.  Manager should have minimum two key personnel in its investment committee with five years of specified relevant experience.  REITs are permitted to invest entire corpus in one project.  REITs cannot undertake investment in other REITs.  Atleast 75 percent of the revenues of the REIT (other than gains arising from disposal of properties) shall be from rental, leasing and letting real estate assets at all times. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  3. 3.  In case of co-investment with any person, few conditions are specified which, inter alia, includes that the investment by other person shall not be at terms more favourable than those of REIT.  Atleast 90 percent of the net distributable income after tax of the REIT should be distributed to the unit holders.  Borrowings and deferred payments  Aggregate consolidated borrowings and deferred payments of the REIT have been capped at 50 percent of the value of the REIT assets.  If the same exceeds 25 percent of the REIT assets, credit rating from SEBI registered credit rating agency and approval of unit holders would be required. Our comments SEBI’s above move of issuing the draft SEBI REIT Regulations will revive substantial investor interest in India’s subdued real estate market. REITs are a positive move towards a more professionally organised and globally well accepted framework for funding real estate development. The move will also reduce individual speculation in real estate assets. For REITs to be a success, apart from finalisation of these regulations, the Government has to ensure that other regulations such as income-tax (in the hands of investors and REITs), stamp duty and exchange control are aligned to enable a vibrant and developed REIT market in India.  Valuation of assets  Full valuation including a physical inspection of the properties should be carried out at least once a year (with every six monthly updation in the valuation).  For any purchase of a new property or sale of an existing property, full valuation to be undertaken and the transaction shall not be less than 90 percent / not more than 110 percent of the assessed value of the property for sale / purchase of assets respectively.  Other Key Aspects  All unit holders of the REIT shall enjoy equal voting rights.  Rights of Investors and specified matters (like change in manager or sponsor, transaction value exceeding 15 percent of REIT assets, etc.) wherein approval of investors are required have been specified.  Stringent conditions have been imposed for related party transactions including detailed disclosures, valuation requirements, investor approval, etc.  Detailed disclosure norms have been specified (including mandatory disclosure requirements in the offer document, valuation report, annual and half yearly report). © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
  4. 4. www.kpmg.com/in Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad – 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Kochi 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block – EP & GP, Sector V Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

×