Staff Reporter

REITs will improve quality and quantity of finance for investment

It will bring about structural changes in property marketsOpportunities to diversify investment portfoliosREITs should have a wider investor base

KOCHI: The Associated Chambers of Commerce and Industry of India (Assocham) has proposed creation of real estate investment trusts (REITs) on the lines of those prevalent in countries such as Singapore, the U.S. and Japan to ensure that property markets are suitably expanded with proper regulation for benefits of investors in real estate.

Such real estate investment trusts are existing in several economies with a developed property market. Generally, they hold, manage and maintain real estates for investment purposes which are leased to tenants. REITs tend to have a broad shareholder base and are often, but not always, traded on a public stock exchange.

In a paper brought out by Assocham on real estate investment trusts, it has been proposed that the creation of REITs will not only improve the quality and quantity of finance for investment in commercial and residential properties but also expand access to a wide range of savings products on a stable and well-regulated basis.

Creation of REITs will bring about structural changes in property markets to reduce costs and improve flexibility and control of tenants, besides ensuring tax exemptions on purchase of properties in real estate. Introduction of REITs will also put in place reforms in properties market by helping to promote better liquidity, more efficient investment decisions, wider access to smaller investors and improved supply of housing through greater institutional investor participation in the residential market.

Assocham president Anil. K. Agarwal, has said that at the investor level, REITs offer the advantage of providing the investors, specifically small and midium-sized investors, opportunities to diversify their investment portfolios through participation in benefits from ownerships of largescale commercial real estate or mortgage lending and thus receive enhanced returns.

On impacting the capital markets, a distinct advantage of introduction of REITs will be creation of the debt-equity balance in the sector which will thus result in reduction in circulation of capital in the form of debt.

The demand for capital in the sector once met by equity financing will have a simultaneous effect on reducing the debt component and consequently, bring down the percentage of non-performing assets (NPAs) in the financial market.

The Chamber is also of the opinion that REITs should have wider investor base, including small and midium-sized investors and should be regulated in a manner so that speculations do not surface in the property markets.