REITS to grow Globally at Usd 1,400 Billion: Assocham-Crisil

The Real Estate Investment Trusts (REITs) would have potential to
hold at least 5% share of the total global real estate market by 2010,
the size of which would turn to USD 1,400 billion in next 3 years, according
to joint paper prepared by the ASSOCHAM and CRISIL.

The paper namely Indian REITs ; Are We Prepared, says that by 2010,
REITs alone would hold a market size of USD 70 billion of the total
real estate market as its concept is gaining ground in countries like
India and other developing nations. The basis for the projections is
based on gross state domestic produce (GSDP) estimates for 2003-04 and
an average annualized yield of 10%.

In Indian context, REITs can help provide an exit route for developers
to revolve fund more efficiently and will provide opportunities to retail
investors to participate in the real estate sector and provide asset
diversification to corporate investors, besides building a vibrant secondary
real estate market.

Releasing the paper, the ASSOCHAM president, Venugopal N. Dhoot said
that currently only venture capital funds have been allowed to offer
real estate funds. The venture capital arms of HDFC, Prudential ICICI,
Kotak Mahindra, IL&FS, Kshitji Venture and real estate mutual funds
(REMFs) are currently available, most of them, only to high net worth
individuals and institutional and global investors. According to SEBI
regulations, individual investors in a REMF must invest at least USD
11,500. The current players, however, have set the minimum contribution
at far higher levels.

The global REIT market comprising 491 REITs in 19 countries of which
the US still accounts for over half of the global REIT market (53.2%),
although this percentage has been declining as a result of conversion
of public REITs to provide REITs in the US and REIT IPOs elsewhere.
The growth of increased profits of REIT markets has led to an increased
level of specialized global REIT funds being launched.

Australia is considered to be the largest REIT market after the US;
more than 12% of global listed property trusts can be found on the Australian
Stock Exchange (ASX). The country is one of the oldest and least restrictive
of the listed property trust (LPT) markets in the world. Australia`s
market is not stringently regulated compared to other global REIT systems,
evidenced by there being no listing requirements, gearing or interest
coverage limits, limits on developments and restrictions on diversification,
ownership or management etc. Australia launched its first LPT in 1971
and in the last 35 years has experienced very successful growth; the
quantum of listed and unlisted REITs under management has increased
by 29% to reach USD 285 billion, now nearly 13 million investors in
2007.

Some key drivers in the success of LPTs in Australia are transparency
of information ? all investors (retail and institutional) have access
to a wealth of data to enable informed investment decisions, brokers
specializing in LPTs/REITs who have come up due to the success of this
asset class and is self-perpetuating the success and securitization
which has allowed retail investors access to such assets which were
hitherto out of reach.

In France, the 2003 Finance Bill opened the door for REIT style investments
by allowing real estate companies listed on the French stock exchange
to convert into `Societies Investments Immobilizers Cotees (SIIC) and
becomes eligible for tax exemption on rental income and capital gains.

REITs were launched in the UK in 2007 and real estate investments are
done through `Pooled Managed Vehicles (PMVs). While these are different
from Open-ended Investment Companies (OICs), they can be in the form
of Trusts. The regulator for these PMVs is the Financial Services Administrator
(FSA), as is the case for OICs. They, however, can have variable capital
and are similar to open-ended mutual funds. PMVs get tax benefits based
on the investor profile; at least 75% of the PMV`s total profits must
be derived from the property business.

Photo: Howrah Bridge Kolkata Photography by Argha Mallick 03 by Arghamallick5151, licensed under CC BY-SA 4.0, via Wikimedia Commons.