Bhuma Shrivastava and Santanu Chakraborty

INDIA’S capital market regulator approved norms yesterday for setting up real estate investment trusts (Reits) and listing them on public exchanges in a move that may unlock a market worth up to $20 billion (R213bn).

The Reits would have to own assets worth at least 5 billion rupees (R873 million), the Securities and Exchange Board of India in New Delhi said in a statement yesterday. Investors would have to put a minimum 200 000 rupees into a Reit.

The introduction will provide a new source of funding for cash-strapped developers struggling to reduce debt amid the highest interest rates in Asia and economic growth near the lowest in a decade. The new rules will give investors the ability to participate in the country’s property market without investing directly.

“These initiatives have opened up an additional window of funding support to the infrastructure and real-estate sectors,” said Nirmal Gangwal, the managing director at Brescon Corporate Advisors, an independent financial advisory firm. “This was long overdue.”

The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months to March, more than double the 158.8 billion rupees in 2007, according to data compiled by broker India Infoline.

Reit-funded assets may reach $20bn by 2020, an estimate by property broker Cushman & Wakefield shows, of which as much as $12bn could be raised in the first three to five years.

India’s Reit market has the potential to grow to rank among the top five markets in Asia by market capitalisation, according to Cushman & Wakefield. – Bloomberg