APREA seeks RBI nod for overseas funds debt investment in REITs, InvITs

MUMBAI: Investment trade body Asia-Pacific Real Estate Association (APREA) has approached the central bank to allow overseas funds to invest in debt securities issued by Real Estate Investment Trusts (REITs) and Infrastructure investment trusts (InvITs).

Finance Minister Nirmala Sitharaman, in Union Budget 2019, had already allowed foreign portfolio investors (FPI) to invest in REITs and InvITs but the enabling mechanism has not yet been put in place.

Capital markets regulator Sebi had also amended the regulations governing REITs and InvITs with effect from December 2017 to provide for issuance of listed debt securities by these trusts. However, due to lack of enabling provisions under the foreign exchange regulations by the Reserve Bank of India (RBI), these business trusts have not been able to source debt funding from FPIs so far

The government and Sebi have been making efforts for the last few years to make REITs and InvITs a success story in India by creating a regulatory framework that is on a par with global standards.

“The government and Sebi have provided appropriate policy frameworks for the success of REITs and InvITs. Once RBI enables FPIs to invest in the debt securities of REITs and InvITs, it will create a more liquid market and improve investor confidence,” said Sigrid Zialcita, CEO, APREA, which represents private equity firms, pension funds and realty developers.

Industry experts believe the faster the mechanisms are put in place, the better it will be for property investors.

“The FPI route is expected to help REITs and InvITs raise debts at competitive rates from foreign investors and would also lead to wider participation by institutional investors. This would also provide business trust unit-holders improved risk-adjusted returns due to leveraging,” said S. Sriniwasan, Managing Director, Kotak Investment Advisors.

Last October, RBI allowed InvITs to access bank lending and APREA is now seeking the same treatment for REITs.

“Bank lending is already permitted for InvIT and hence to bring parity, the same should be allowed for REITs. Banks have significant liquidity at the moment and REITs primarily comprise income producing assets and hence should provide comfort to banks with regard to servicing of loans,” said Gaurav Karnik, National Leader, Real Estate and partner, EY.

Banks have been shying away from lending to real estate for the last few years given the risks associated with the sector.

However, REITs are generally rated well in comparison to other individual assets.

According to Zialcita, although there have been bouts of volatility, foreign investors globally have continued to show interest in taking a long-term position on the Indian markets.

The capital market regulator has so far proactively undertaken many initiatives including reduction in the perpetual lock-in requirement for the sponsor to align it with those applicable for IPOs and flexibility for change in REITs and InvITs’ sponsors.

It has also reduced trading lots size to enhance the liquidity and has made provisions for enabling further capital raise in REITs, which will help further growth.


Leave a Reply