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Summary Small investors would soon be able to participate in the booming realty sector as the government plans to introduce a new instrument—real estate investment trusts (Reits)—in the Indian securities market.

Small investors would soon be able to participate in the booming realty sector as the government plans to introduce a new instrument—real estate investment trusts (Reits)—in the Indian securities market.

Reits are trusts that own and operate real estate assets to generate income through lease rentals and property appreciation. They are like “listed landlords”, as an analyst puts it, which pass on the profits to its stockholder in the form of dividends.

The Securities & Exchange Board of India (Sebi) has said last week it is in favour of introduction of Reits in India. The regulator’s decision comes at a time when the realty sector is booming and companies are going for listing to tap the stock market.

The global listed real estate market is expected to grow from $23.6 trillion in 2006 to $33.3 trillion in 2010 while the Indian real estate market for 2006 was pegged at $0.15 trillion, according to ING Clarion Real Estate Securities Research.

Apart from enabling companies to raise funds, Reits bring in professional management in the realty sector. The returns offered by Reits could be very attractive at times. For instance, the Chinese Reits have given an average return of 100% this year.

The US created Reits in 1960 to enable retail investor participate in large-scale, income-producing real estate assets. Now they have become pretty common in developed markets such as the US, the UK, Japan and Australia as well in emerging economies of Singapore and China. At present, Sydney, Tokyo, Hong Kong and Singapore are the four major Reits listing centres, said Vineet K Vohra, MD & CEO of ING Investment Management (India) Pvt Ltd.

According to analysts, to have an adequate regulatory apparatus for Reits, the government needs to work on property valuation norms and accounting guidelines, not to forget the supportive taxation regime.

Sebi has tasked the Institute of Chartered Accountants of India to look into the valuation issue and once ICAI clears the norms, the regulator is expected to formalise the rules. The regulator’s urgency also stems from the fact that a number of Indian companies were planning listing Reit-like structures on the Singapore Stock Exchange as India currently does not allow listing on domestic bourses.

One of the challenges being faced the Indian authorities is to how to give recognition to revenues arising of real estate assets. ICAI, chairman (corporate law committee), Vinod Jain said the Institute was studying various property valuation methodologies as well as