Govt Plans to Attract Sovereign Wealth Funds (SWFs),Revives REITs

Real estate investment trusts (REITs) and tailor-made investment options frominfrastructure companies to sovereign wealth funds could get a go-ahead soon as partof the government’s efforts to attract investments and make capital markets morevibrant.

Finance Minister P Chidambaram had last week held discussions with investmentbankers and economists on measures to create interest in Indian capital markets andattract overseas investments. Based on the feedback, the finance ministry has starteddiscussions on a number of initiatives.

“A number of options are being examined...REITs and specific instruments to attractsovereign wealth funds are some of them,” said a senior government official, who didnot wish to be named.

REITs pool capital from investors to purchase and manage real estate assets and/ ormortgage loans and are traded on major stock exchanges like normal stocks. Thesecould help raise stable funds for the real estate sector and also help wean awayinvestors from gold by giving them an electronic mechanism to invest in real estate. Atpresent, investment in real estate is possible only through direct purchase of property orindirectly through shares of real estate companies, both risky investment options.

REITs, like gold ETFs, can create a new set of investors who may not have theresources or may not want to directly buy property. Market regulator SEBI had issueddraft guidelines for REITs in 2008 but the final norms were never issued, promptingsome of the domestic real estate firms to launch a similar product on an overseas stockexchange.

“REITs have become a preferred public property investment vehicle around the world.REITs boost and help stabilise capital access, and reduce capital costs. REITs help inreal estate business efficiently by creating conditions for building integrated propertybusinesses,” SEBI had said in its covering note to the draft guidelines. The then SEBIchairman CB Bhave had cited non-transparent valuation norms, differential stamp dutyacross states and the lack of uniformity in land and property pricing as the majorhindrance in the way of REITs.

Real estate players have time and again demanded establishment of REITs, which arevery popular instruments in the developed markets. In the US, REITs have raised over$160 billion in fresh money since 2011.

“It is a very good idea,” said Anshuman Magazine, chairman and managing director ofCBRE South Asia, adding that it has the potential to make the industry more transparentand professional apart from helping attract more investments.

The ministry could also allow some select stateowned infrastructure firms to raise long-term foreign capital from sovereign wealth funds and investors in select markets as itseeks to shore up long-term capital flows in the country.

Some long-term investors such as pension funds and sovereign wealth funds haveshown keenness to invest in the India story and the government is keen to capitalise onthe sentiment, the official said. The options being discussed include allowing somepublic sector entities involved in infrastructure development to raise funds from selectmarkets where there would be interest and appetite for India. For example, allowingDMIC to raise funds from Japanese investors who could be keen on high returns froman infrastructure project in India or Indian Railways Finance Corporation from investorsin the Middle East.

The country needs stable foreign capital flows to finance its high current account deficitthat stood at 4.8% in 2012-13.

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