India Real Estate Monitor

MUMBAI – Property developers are expected to turn overseas to list Real Estate Investment Trusts (REITs) as proposed local rules favour funds and small investors rather than real estate companies, officials said.
Developers are hoping to recover costs by selling properties to REITs in which they hold a controlling stake. However, draft rules, which restrict ownership by a single entity, may prompt them to list REITs elsewhere.
“We can sell our developments to Indian REITs. But we will still be floating them in countries that favour developer REITs.” Ramesh Sanka, chief financial officer at India’s largest real estate developer DLF, said.
“The protection mechanism (in India) essentially makes it a product for funds and investors and not developers,” said Sanka.
A REIT is a property investment trust that raises money from investors by listing on exchanges and uses the funds to buy out investments from a developer. It then leases out the property, using the rental income to pay dividend.
DLF and rivals Unitech and Indiabulls Real Estate are among a clutch of developers looking to Singapore for a REIT listing. DLF wants to raise $1.5 billion, Indiabulls $1 billion and Unitech $600 million, bankers have said.
R. Nagaraju, general manager, corporate planning, Unitech, told that Valuations in the international market are better. Funds are also better developed (abroad) and yields lower.
It is told by the one of the analyst that India does not yet allow REITs, but draft norms are in place. The move will increase transparency in the fragmented sector but developers need to be made direct stakeholders.