The decks have been cleared for the launch of the real estate investment products in the market, the SEBI Chairman, Mr M. Damodaran, told Business Line here today.

The last hurdle had been cleared with the Association of Mutual Fund Industry and the Institute of Chartered Accountants of India having firmed up the valuation norms for these products, he said. “We should be able to clear the guidelines soon. Our expectation is that in the next couple of months, we should be able to streamline it.”

Explaining the process, he said that these two bodies looked at whether it was possible at all to accord a valuation and the frequency with which one needed to do it. Valuation, almost on a continuing basis, is needed as people enter and exit schemes on a regular basis.

“Real estate is an asset class that has grown rapidly” Mr Damodaran said: “Why keep the small man out because he does not have money to buy land?”

Real Estate Investment Trusts (REITs), for example, are something that will soon happen in the Indian market, he explained.

However, the ultimate test for whether ‘REITs’ will succeed will be the taxation treatment. Those markets that have not given favourable tax treatment to REITs, the product hasn’t taken off because you need to see the capital gains angle, he said. In some jurisdictions that have welcomed this product, notably the US to begin with and later the Asian markets, the product has taken off as the tax treatment was favourable.

So, while the product will be available, the additional attractiveness of the product by way of appropriate tax treatment is something that the Ministry of Finance will have to decide, he said.

“Should that happen, I think the way the real estate is growing in this country, this is going to be not just an attractive product, but I think it will bring some discipline into this (real estate) industry.

“You don’t have a real estate regulator anyway. Into that space we are hoping to bring through this product a certain discipline that is tried and tested in other countries.”

The category of investors in ‘REITs’ will be slightly different. I don’t think in the first flush you will see the retail (investors). I do not think that the investments will be in the same kind of assets.

You will see initially, just to get over the teething problems, a certain restricted universe of assets. But if one wants REITs to really take off then even projects under construction will have to be thrown open for investor participation, he emphasised. After all, investors in these instruments will be people investing, staying the course and taking out money after a while. These are people who look for appreciation more than income (current) on a regular basis. They will capture the upside over a period of time, he said.


The Hindu
26 Dec, 2007
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