India's Real Estate Market Revolution: REITs and RERA Spearhead Transformation At NAREDCO's 16th National Convention

SEBI's regulatory amendments in November 2023 aim to foster Small and Medium (SM) Real Estate Investment Trusts (REITs) by lowering the minimum asset value to Rs 50 crore, encouraging broader participation and investment in the real estate sector

The booming real estate market of India, which has the potential to contribute to the USD 5 trillion Indian economy, also presents an opportunity for investors to diversify their portfolios. However, the requirement of hefty funds and liquidity threats have been barriers for investors. Nevertheless, the conception of real estate investment trusts (REITs) for fractional ownership and ease in exit attempts to democratise real estate investment.

Besides, small and medium (SM) REITs cater to smaller markets, making them an attractive option for novice and seasoned investors seeking both stability and growth.

Muppa Choudhary, VP of NAREDCO at the 16th National Convention, reiterated the concept of SM REITs and said, “Such REITs are very popular in the US market; however, in the Indian market, REITs began to emerge after 2014 but were kept outside the jurisdiction of SEBI, which created trust deficit among investors. Subsequently, SEBI was entrusted to regulate REITs, leading to their listing on the Indian bourses in 2019. SM REITs present an immense opportunity for retail investors to participate in the real estate business, ensuring credibility and growth.”

Likewise, RERA has also been a revolutionary initiative by the government of India, in which NAREDCO has also played a vital role. RERA drove the engine of the real estate boom, resulting in a cascading effect such as building trust among investors and builders in terms of timely delivery, voluntary control on builders’ activities, and property inspections, which reduce the liability of banks. Ultimately, such transformative initiatives led to the real estate segment becoming an imperative contributor to GDP growth, added VP of NAREDCO.

In order to create a regulatory framework for the development of SM REITs, with an asset value of at least Rs 50 crore as opposed to the minimum asset value of Rs 500 crore for existing REITs, the SEBI board adopted modifications to the REITs Regulations, 2014 in November 2023 to encourage investments.

“In tier 2 cities, market value and purchase value have a huge difference, indicating the importance of fractional ownership. Currently, REITs are valued at Rs 50,000 crore, and capital market surpluses, which have inflated the value of stocks and start-ups, should be diverted towards real estate through REITs, whereas real estate prices are realistic. However, real estate is prone to frauds and must be operated with sensitivity to ensure no fault to keep stakeholders’ participation,” said Sunil Jain, VP of NAREDCO, Rajasthan.

Speaking at the event, Shiv Parekh, Founder, and CEO of HBits, and Sudarshan Lodha, Co-founder of Strata, highlighted the feasibility of REITs. Parekh said, “SEBI's declaration to impose network and experience requirements, as well as individual investors not obtaining more than 25 per cent stake, ensure no manipulation in SM REITs, influencing.”

Lodha added, “Investors look for quality assets and exit options, and REITs are a suitable option for indirect exposure in real estate. Other alternatives such as fixed deposits demand long-term commitment and stock investing pose threats to wealth preservation due to their volatility. Whereas, REITs can generate up to 20 per cent returns, and subsequent to their listing, REITs reduce long-term capital gains (LTCG) gains from 20 per cent to 10 per cent in addition to their listing gains. The challenge of scouting a decent real estate unit in a hyper-local ecosystem is fairly addressed in REITs.

NAREDCO hosted its 16th National Convention 2024, themed “The Changing Real Estate Landscape.” The convention aimed to bring together key stakeholders to gain insights into the dynamics of growth and transformation in India’s real estate sector. The convention also served as a platform to explore various facets of the sector and feature insightful discussions on government support, affordable housing, the impact of RERA, financing options, technology integration, and investment opportunities.

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