Study of REITS (Real Estate Investment Trusts) and its prospect in India: Studied REITS in US, UK, Singapore and Hong Kong; its evolution in India and its pros and cons. Concluded that India is a conducive environment for REITS.
REIT’S IN INDIA
• Manhar Bajaj B027
• Mit Solanki B029
• Muskaan Samal B030
• Navya Seth B031
WHAT IS REIT’S?
• A REIT, or Real Estate Investment Trust, is a company that owns or
finances income-producing real estate.
• Modelled after mutual funds,
• REITs provide investors of all types regular income streams,
diversification and long-term capital appreciation.
• REITs allow anyone to invest in portfolios of large-scale
properties the same way they invest in other industries.
• Most REITs are traded on major stock exchanges, but there are
also public not listed and private REITs. The two main types of
REITs are Equity REITs and Mortgage REITs .
• REIT’s are also known as Real Estate Stocks.
IN WHAT SENSE IS REITs A TRUST ?
A trust is a fiduciary relationship in which one party,known as a truster,gives another
party,the trustee,the right to hold title to property or assets for benefit of third party.
• Real Estate Investment Trust should be a Registered Trust
• Trust deed has its main objective as undertaking the activity of REIT.
• The trustee to REIT is to registered with SEBI under SEBI (Debenture Trustees)
• The Trust shall initially apply for registration with SEBI as a REIT in the specified
• It shall fulfil eligibility criteria as specified in the draft Regulations.
• SEBI, on being satisfied that the eligibility conditions are satisfied, shall
• grant the REIT certificate of registration.
• Equity REITs mostly own and operate income-producing real estate. They
increasingly have become real estate operating companies engaged in a wide
range of real estate activities, including leasing, maintenance and
development of real property and tenant services.
• One major distinction between Equity REITs and other real estate companies
is that a REIT must Acquire and Develop its properties primarily to operate
them as part of its own portfolio rather than to resell them once they are
• Mortgage REITs mostly lend money directly to real estate owners and
operators or extend credit indirectly through the acquisition of loans or
• Today's Mortgage REITs generally extend mortgage credit only on existing
• Their revenues are generated primarily by the interest that they earn on
• Hybrid REITs combine the investment strategies of equity REITs and
mortgage REITs by investing in both properties and mortgages.
How to assess the investment value of REIT units?
• An individual may invest in a stock exchange-listed REIT, which is listed on
major stock exchanges. Investors may also purchase shares in a REIT mutual
fund or exchange-traded fund(ETF).
• A broker, investment advisor or financial planner can help analyse an investor’s
financial objectives and recommend appropriate REIT investments.
• Like all companies whose stocks are publicly traded, stock exchange-listed REIT
shares are priced by the market throughout the trading day.
Anticipated total return from the stock.
Current dividend yields relative to other yield-oriented investments (e.g. bonds,
utility stocks and other high-income investments);
Management quality and corporate structure.
Underlying asset values of the real estate and/or mortgages and other assets.
• To assess the investment value of REIT shares, typical analysis involves
one or more of the following criteria:
Anticipated growth in earnings per share.
How do REIT’s function ?
• Investors invest in REITs by purchasing it’s units and become unit holders of
• Units of REITs can be traded on major securities trading platforms like BSE
• From the funding received by the unit holders minimum of 80% is invested
in completed and rent generating projects
• A REIT can use the other 20% of its assets to invest in
Completed, but not rent generating
Other financial instruments
Special Purpose Vehicle (
A special purpose vehicle/entity (SPV/SPE) is a subsidiary company with
an asset/liability structure and legal status that makes its obligations
secure even if the parent company goes bankrupt.
HISTORY OF REIT’S
• REITs were first created in the US in 1960’s to give anyone and
everyone the ability to invest in large-scale commercial properties.
• Legalised in 2001 in the USA and 2007 in UK.
• REIT Law Passed in India in 2013.
GLOBAL EVOLUTION OF REIT’S
1960’s 1970’s 1990’s 2000’s 2010’s
Legislative Framework in places
Hong Kong (2003)
South Africa (2013)
While the U.S. remains the largest listed real estate market, the listed real estate market is
increasingly becoming global. The growth is being driven, importantly, by the appeal of REITs.
The chart below showcases market cap of REIT across leading countries
EVOLUTION OF REIT’S IN INDIA
Recommendations of the Satwalekar
Committee on Real Estate Funds.
Venture Capital funds permitted to
invest in real estate, removed
from negative list.
SEBI amends the mutual fund
regulations to introduce the concept
of real estate mutual funds.
SEBI introduced first draft of the
regulations for public comments.
After extensive interactions by SEBI
with various constituents in the market
over the last several months, it
released second draft of the
regulations for public comments.
After taking industry inputs,
amendments to regulations were made
and the draft was approved allowing
setting up and listing of REIT’s. Post the
clarification provided in the budget, a
final draft was introduced by SEBI in
REIT CONEPT IN MORE COUNTRIES
SINGAPORE UNTED KINGDOM
• REIT was introduced in Singapore in the year 2002.
• Commonly referred to as S-REITs.
• The first one to be set up being CapitaMall Trust in July 2002.
• Singapore's REITs or S-REITs are closely regulated and monitored by the
Monetary Authority of Singapore (MAS).
• The majority of REITs listed on the SGX invest in property assets
subject to strict regulations.
• One of the most important rules that an S-REIT follows is that it has to
distribute 90% of its taxable income to unit holders. In addition to this, unit
holders are entitled to the capital appreciation in the properties that have
been purchased by the REITs.
• Since being established in 2002, the S-REIT market has grown
tremendously. It is now at a stage where it compares favourably with other
REIT markets in the region.
• Today, there are around 20 REITs listed in Singapore.
• Shortage of land is the biggest challenge faced by S-REIT’s.
REIT HONG KONG
• In December 2004, Hong Kong attempted to launch its first REIT via the Link
• REIT’s have been in existence in Hong Kong since 2005.
• In November 2005, Link REIT (US$ 2.6 billion) was successfully launched and
heavily over-subscribed. Link REIT was the world’s largest REIT IPO,with a 6%
dividend yield to March 2007
• Since 2005, there have been 7 REIT listings as at July 2007, most of which,
including Sunlight REIT have not enjoyed success because of low yield.
• In the first quarter of 2007, there is a listing of Regal REIT and recently, we
have seen Mainland China’s launching REITs in Hong Kong market.
• As of July 2012 there are nine REITs listed with a total market capitalisation of
approximately €15 billion which amounts to almost 2% of the total global REIT
REIT UNITED STATES
• Real Estate Investment Trusts first came to the spotlight around fifty
• In the 1970s and 1980s it was at a developing phase. It was in the 1990s,
where the sector had achieved a substantial growth.
• The U.S. REITs are classified on the basis of their investment form.
• The REIT paved the way for the small and medium scale investors, and
allowed free flow sales and purchases for their income-generating
• As of Jan. 31, 2014, there were 204 REITs registered with the
Securities and Exchange Commission in the United States.
• These REITs have a combined equity market capitalisation of $719 billion.
• During the 55 years of REIT history, the U.S. REIT market has gone
through a roller coaster ride.
• From a relatively slow start in 2007, the number of UK real estate investment
trusts (UK-REITs) is growing.
• Many of the largest listed property companies quickly converted to UK-REIT
status when the regime was introduced in 2007.
• Qualifying as a UK-REIT is now increasingly recognised as an attractive option
for many different listed real estate strategies.
THE UK REIT
Company and Listing Rules
• Must be a closed ended company
• Must be listed on main stock exchange (LSE not AIM)
• Must have one class of (voting) shares
• Must be resident in UK for tax purposes
• Restrictions on large share-holdings (10% rule)
• Define a Tax Exempt Business (ring-fenced)
• 75% of firm’s profit from real estate (rents)
• 75% of firm’s assets = real estate
• Must have three properties (not owner occupied)
• Development activity OK for portfolio building (3 year rule)
The legislation laying out the rules for REITs in the United Kingdom was enacted in the
Finance Act 2006 (now see the Corporation Tax Act 2010 sections 518 to 609) and
came into effect in January 2007
Benefits of REIT’s in India
• Alternative investment opportunity
• Overcomes the problems of physical purchase
• Tax free returns
• Easy entry and exit mechanism for investors
• REITs would help developers resolve their fund-raising issues
• Reduces burden
• Provides an exit
• Provides capital for future and existing projects
Potential of REIT’s in India
• Indian commercial real estate offers investment opportunity worth USD 43 - 54
billion (INR 2,88,758 crore-INR 3,60,948 crore) across the top 8 cities via REIT-
eligible ready stocks as per RICS and Cushman & Wakefield report entitled
“Commercial Real Estate: Steering Growth in Indian Cities”.
• The report estimates that the value of REIT-eligible stock is seen to be the
highest in Bengaluru (USD 15.8 billion )/INR 1,05,213 crore)
• Mumbai (USD 14.5 billion/INR 96,461 crore) comes a close second due to
higher capital values of commercial properties, despite having roughly half of
Bengaluru’s REIT-able stock.
• The entry of higher number of foreign brands over the years would likely spur
the requirement of quality malls in major cities. Going forward, there is over 25
msf of malls space that is currently under construction across the eight cities
and is expected to get operational by 2018. These malls would provide investors
with an array of investment options in the retail asset class.
INDIA IS A CONDUCIVE ENVIRONMENT FOR REIT’S
• Growing economy
• Increasing working age populationHousing and urban
• Housing and urban infrastructure requirement
• Worldwide, an affordable office space
In the near future, we expect the REIT vehicle to increase the depth of the
Indian property market through enhanced transparency and governance