I saw the huge billboard as I was driving into the city from the airport last Friday. I am not certain if I noticed it on the way out. The crawling evening traffic made sure I had a longer and closer look at it. It was about a 'city' project of a National Capital Region-based developer. On the top right corner, a highlit portion said: “Investment starts at Rs 5.85 lakh.” On the other side, a blurb said: “Assured return of 12.5% per annum.” For a moment, I reproached myself: “India’s first Real Estate Investment Trust (REIT) has already launched and you did not even know.” But, wait. Is this a REIT registred with the Securities and Exchange Board of India (Sebi)?
It accepts ‘investments’ in a real estate project. It assures handsome ‘returns.’ But, it doesn’t seem to be registered with the regulator.
Not a REIT but a REIT killer. I’m saying so because they operate in the same area as the regulated product but since they are not registered, they are able to skip the prescribed prudential norms and investor protection mandates. A registered REIT has to incur higher costs to adhere to these compliance requirements. These unregistered killers are able to offer higher returns and pocket more profits. How can a new product survive in such an environment? Cursory checks with officials and people in the sector elsewhere in the country suggest such REIT killers have proliferated wide and deep. In South India, stars of television mega serials are often seen marketing realty projects with alleged potential for handsome returns. These often come with free gifts such as silk sarees and gold coins. These are clearly operating out of the regulatory framework put in place by Sebi. Apart from the REIT regulations, another development has made realty investment offers like the one I saw on the billboard untenable.
This is passage of the Bill giving more powers to Sebi. The Securities Laws Amendment Act, 2014, inserts a residual proviso to Section 11AA that deals with collective investment schemes (CIS). This has widened the ambit of Sebi substantially. It says, “Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more, shall be deemed to be a collective investment scheme.’’
In a city where upmarket bungalows and farm houses change hands for a few hundred crores, anybody developing a ‘city’ project for less than Rs 100 crore runs the risk of being scoffed at. This means our billboard developer should be among the first targets of the brand-new bazooka of a proviso Sebi has got. Over recent years, Sebi chairmen have articulated the need for greater powers to deal with the menace. But in a Sunday PTI report, the chief has been quoted that state governments should also legislate and take steps to protect depositors. When CIS regulations were introduced 15 years ago, Sebi had directed the winding up of 500 entities, as they did not apply for registration as directed. Now that Sebi’s powers have taken a jump, we should see a similar or comparable number of entities go down. With great powers come great responsibilities.
