SEBI planning 'micro' REITs to boost nascent market

Mumbai: India's market regulator is planning to allow "micro" real estate investment trusts (REITs), according to a senior official, to bring a wider set of property companies to the nascent market as India emerges from a pandemic-induced lull.

The Securities and Exchange Board of India (SEBI) is considering reducing the size of REITs, allowing them to hold just a single asset or a diversified portfolio, to increase supply and flexibility for investors, said the official.

REITs in India must now have a minimum asset value of 5 billion rupees ($60 million). The possibility that SEBI may lower the minimum has not been reported previously.

SEBI was taking an idea from consumer retail markets, the official said. Demand for shampoo in India was limited until the launch of single-portion sachets tailored to the budgets of poor households sent the market soaring, the official said.

"That's what SEBI is trying to do with micro REITs," the official said, with a working group assessing the risks and formulating the details on size.

"But disclosure requirements and governance will not be compromised in any way."

The official declined to be named as the SEBI discussions on the matter were private. SEBI did not immediately respond to requests for comment.

SEBI's plan comes amid a sweetening post-pandemic outlook for Indian commercial real estate, with demand and prices expected to rise steadily over the next few years, as employees head back to offices and shoppers flock to malls.

REITs are listed entities that invest in rent-yielding assets and distribute most of their income as dividends.

"Reducing the size of listed REITs may not necessarily help the market grow," warned Shobhit Agarwal, managing director at investment banking advisory firm Anarock Capital.

For one, sponsors would want a minimum size of assets for it to make sense to list publicly, given the costs and compliances attached, Agarwal said.

Allowing smaller and single-asset REITs could also compromise quality in a market that is just picking up, he said.

"There is some pick-up organically in the REIT market and retail investor interest has picked up with each issue."

SEBI first allowed REITs in 2014 to fund a capital-starved real estate sector and help developers reduce their debt. But demand was hamstrung by high taxes and cumbersome regulations.

Interest in REITs and infrastructure investment trusts has picked up slowly since the first REIT was listed in 2019 after regulations were relaxed, including lowering entry barriers and allowing a wider set of investors.

India has three publicly traded REITS, two of which are listed by Blackstone Inc, and the US investment fund is set to soon list a fourth.

In comparison, the United States has close to 200 listed REITs and Japan has 64, according to a PwC report released earlier this year.