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Real Estate Investment Trust

Global investment company Blackstone and realty firm Embassy Group are set to launch India’s first real estate investment trust (REIT) with an estimated issue size of Rs 5,000 crore.

What is REIT?

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to make investment in this platform and earn income. Real Estate Investment Trusts are funds that pool in money from multiple individuals and invests this into real estate, allowing individuals to be a part of the real estate growth without requiring massive amounts of capital. Real Estate Investment Trusts (REITs) are like mutual funds, but the main difference is that investments are made on properties like buildings and land instead of stocks and shares. SEBI had notified REIT’s regulations in 2014, allowing setting up and listing of such trusts, which are very popular in some advanced markets.

How does an REIT work?

REITs raise funds from a large number of investors and directly invest that sum in income-generating real estate properties (which could be offices, residential apartments, shopping centres, hotels and warehouses). The trusts are listed in stock exchanges so that investors can buy units in the trust.

REITs are structured as trusts. Thus, the assets of an REIT are held by an independent trustee on behalf of unit holders.

Real Estate Regulatory Authority (RERA)

Key provisions:

  • Register with RERA: Requirement for developers to now register projects with RERA prior to any advertisement and sale
  • Approval and Sanctions: Developers are also expected to have all sanction plans approved and regulatory clearances in place prior to commencement of sale
  • Updates on the Website: The Act stipulates an electronic system, maintained on the website of RERA, where developers are expected to update on a quarterly basis the status of their projects, and submit regular audits and architectural reports
  • Action for non-compliance: If there is non-compliance, RERA has the power to order up to three years imprisonment of the promoters of a project
  • Separate Escrow Accounts: It requires developers to maintain separate escrow accounts in relation to each project and deposit 70% of the collections in such an account to ensure that funds collected are utilised only for the specific project
  • Agents & brokers to register: The Act also requires real estate brokers and agents to register themselves with the regulator

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