Real estate investment trust pitch for direct bank lending, classification as equity

Mumbai, Indian Real Estate Investment Trust (REIT) industry on Wednesday pitched for the entities to get access to direct bank lending and classification as equities. At present, such vehicles can issue bonds or borrow from non-bank lenders or mutual funds, but are prohibited to borrow from banks, said the Indian REITs Association (IRA), a newly formed umbrella body for the five-year-old sector, which comprises four listed entities.

The body's Chairman and Embassy REIT's Chief Executive Arvind Maiya told reporters it is in touch with the RBI (Reserve Bank of India) for allowing banks to lend to such vehicles.

The real estate industry is asset-heavy and needs funds regularly to buy assets for which it should be allowed to borrow directly from banks, he added.

Typically, banks have access to deposits which brings down the cost of funds, and hence, the cost of borrowing can become softer for a borrowing entity.

Alok Aggarwal, the Managing Director and Chief Executive of Brookfield India Real Estate Trust, said, at present REITs are classified as a "hybrid" instrument which creates confusion in the minds of the investors.

Maiya said classification as equities will lead to passive money coming into REITs as the instrument gets included in indices.

Other geographies like Singapore, which has inspired the Indian REIT regulations, as well as the US, treat the instrument as equity, he said, stressing that all the features of the instrument are similar to equity.

An industry participant said the tax advantages which it gets courtesy of the hybrid status will continue even if it is classified as equity, while another hoped that it can also get gains from a taxation front courtesy of the Long Term Capital Gains (LTCG) which is applicable for equity.

The IRA said there are lots of opportunities for the REITs sector to grow in the country, both from a supply side, where the demand for real estate is bound to keep growing and also on the demand for such instruments as Indians look for newer asset classes.

Ramesh Nair, the Chief Executive of Mindspace REIT, said the Global Capability Centres (GCCs) of multinationals alone present a very handsome opportunity for the REITS story in the country.

Citing the experience in the US, industry executives said there will be dedicated REITs for specific aspects like warehousing and residential properties.

When asked about the lack of demand in the residential space till now -- three Indian REITs are in commercial space while the fourth is in retail -- an industry executive said the yields are very low at 2-3 per cent which prevents REITs' play.

Nair said the sector wants to reach out to mutual funds' lobby grouping Amfi to learn and partner with them, given that the REIT's current priority is also to create awareness among the investors.