Foreign, local investors keen on realty trusts

Foreign investors, both individuals and corporates, are making a beeline to invest in the Indian real estate sector.

According to sources, the Development Bank of Singapore (DBS), the Keppel group of Singapore and the Government of Singapore itself are among the institutions which have sounded out the Indian government after getting the green signal to set up real estate investment trusts (REITs) to route their investments in Indian commercial properties. These corporates are willing to invest a minimum of $1 billion each in various projects.

Foreign individual investors, mostly from the US, too have been making enquiries of late. A senior partner with a prominent Mumbai-based law firm, which has been acting on behalf of some of these clients told Business Standard: "Each of them is willing to put in a minimum of $150 to $250 million into the Indian real estate market."

Incidentally, the Securities and Exchange Board of India (Sebi) has removed real estate from its negative list of investments for venture funds. So most of these REITs register themselves as foreign venture capital investors and also get the required tax pass-through which gives them exemption from being taxed twice, first in India and then in their home countries.

Sebi has, however, told these prospective investors that though the regulator has no problem registering them as venture funds investing in real estate, it does not have any jurisdiction over the Foreign Investment Promotion Board (FIPB) where they will have to clear such investments on a case-to-case basis.

The Singapore-based institutions have come in recently, on hopes that foreign investments may be allowed in the general construction business. But this seems to have been ruled out by the government. Typically, REITs buy out fully constructed commercial properties from builders and rent it out.

The annual rental income is their main source of revenue. This route offers builders an easy way to offload their property in wholesale deals, instead of looking for people to lease it out to. Legal experts said that in such a scenario the properties could even be sold at a slight discount to the market price.

The venture capital arms of ICICI Bank and Housing Development Finance Corporation have both entered this sector but real estate circles said the kind of money which foreign investors are willing to put in would change the entire scenario.