India’s Stock Market Regulator, The Securities and Exchange Board of India (SEBI) finally announced the much-awaited draft guidelines for Real Estate Investment Trusts (REITs).

The authority has finalised a concept paper on real estate mutual funds with the proposed norms being based on a committee headed by Milind Barye, CEO of HDFC Mutual Fund.

According to Market Regulator, the new norms will allow local asset management firms to raise money from investors, which could be invested in the realty sector — in projects and in the equity of both listed and unlisted firms.

The trust and the management company for such real estate funds must have a net worth of not less than Rs 5 crore, adequate infrastructure, and professionals with requisite experience in related field, it added.
According to the draft regulations, REITs will not be allowed to launch any investment scheme without obtaining a rating from a credit rating agency and getting the scheme approved by an appraising agency.

SEBI proposed that Trustees should be either a scheduled bank, trust company of a scheduled bank, public financial institution, insurance company, or a body corporate.

A scheme should be launched by a trust and be managed by a real estate investment management company, with both parties having to register with SEBI. Only close-ended schemes can be launched by the trusts, and these schemes have to be listed on the stock exchanges mentioned in the offer document, it added.

SEBI said that the Net Asset Value (NAV) of these schemes will be disclosed preferably on a yearly basis, which will be based on the valuation report prepared by the principal valuer.

The scheme shall distribute not less than 90% of its annual net profit after tax as dividends every year to unit- holders, the regulator said.

Regarding Limitations, SEBI said that REITs will be allowed to invest only up to 20% of total asset value in incomplete and non-income generating assets, and can borrow only up to 20% of the gross assets of the scheme.

SEBI further stated that the overall exposure of each trust to single project is limited to 15% and the exposure for projects undertaken by the same group of companies is limited to 25%.

The market regulator has also proposed that these schemes can invest only in income generating real estate and not in vacant land.

SEBI has invited public comments and suggestions on the draft guidelines from general public till January 10, 2008.