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S'pore-style
property funds planned
Industry
bodies say real estate investment trusts will boost business
and raise investment
By Ravi Velloor
India Bureau Chief
NEW
DELHI - INDIA'S industry lobbies are pushing the government
to allow Singapore-style real estate investment trusts,
or Reits, and there are indications that New Delhi may
be getting ready to accommodate the demand.
'The
matter is under consideration. The response to the demand
is not negative, but I cannot say if it will come in this
Budget or later,' a senior government official in New
Delhi said.
Finance
Minister P. Chidambaram will present the annual financial
statement on Feb 28.
Reits
are listed property trusts that mobilise money from the
average share market investor and invest it into real
estate, paying out most of their rental income as dividends.
In
the United States, Reits have consistently outperformed
the equity market since 2000. Singapore's Reits delivered
an average total return of about 30 per cent last year.
With
an estimated shortage of three million dwellings, real
estate is one of the most promising investment avenues
in this nation of 1.1 billion, where people are buying
homes earlier in their lives and borrowing more amid the
lowest interest rates in a generation.
The
sector also generates economic activity in 220 industries
and is the highest employment generator after agriculture.
The
official in New Delhi said that since Reits draw on money
from the public, the government needs also to set up a
mechanism to regulate these trusts once they are allowed.
The
real estate industry says instruments like Reits will
go a long way in helping to plug the supply gap, thereby
lowering business costs.
'India
needs US$80 billion (S$132 billion) to fill its housing
shortage,' says Mr Sushil Ansal, New Delhi's second-biggest
developer and chairman of the housing committee at the
Federation of Indian Chambers of Commerce & Industry.
'Reits
are one answer. It is a safe, tested instrument.'
Apart
from asking the government to permit Reits, in which foreign
institutional investors may also invest, business lobbies
have given Mr Chidambaram a list of demands, which include
permission for foreign companies to purchase office buildings
and condominiums to let out.
They
are also seeking foreign direct investment in group housing,
shopping malls and retail businesses, among other suggestions.
'Reits
will work in India and should be allowed,' says Mr Gaurav
Dalmia, who runs Landmark Holdings, which is currently
developing a 1.5-million-sq-ft high-rise in New Delhi's
Civil Lines area, the largest construction project in
the city. 'In India, ownership is fragmented. If you want
to maintain the quality of a building you need to consolidate
ownership.'
Mr
Dalmia, who is partnering with a Singaporean tycoon to
set up a US$50-million real estate fund called Solitaire,
points to the buildings along Nariman Point, the toniest
business address in Mumbai, India's financial capital.
'You
have A-grade buildings, A-grade rent and B-grade quality
of upkeep,' he told The Straits Times in a telephone interview
from Dubai, United Arab Emirates.
Once
Reits are allowed, says Mr Dalmia, there would be no shortage
of investors because of the huge demand for rental yields,
which can fetch as much as 9 per cent in India, compared
with 6 per cent for government bonds.
Investors
around the world are taking steps in anticipation of a
loosening of Indian government rules on Reits.
Singapore's
10-member India Advisory Panel, which held its inaugural
meeting last week, agreed to work on a new real estate
fund as a precursor to a real estate investment trust.
India's
ICICI Bank has offered to assign a team to work on this
new fund with Singapore companies..
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