After many years of waiting, in 2014, the Securities and Exchange Board of India (SEBI) finally approved the establishment of the Real Estate Investment Trust (REIT) in India. REITs have been functioning lucratively around the world since their inception in the 1960s in the US. The bold move by SEBI to bring the highly successful REITs to India has opened new vistas for investors, as the construction sector in India has been in dire need of such transparent and dependable investment routes. The real estate segment is a major contributor to the national GDP and is a fast-paced one. The Indian real estate sector has traditionally been dominated by a number of small regional players, leading to a lack of clarity among investors. With the Indian government allowing 100% FDI inflows into the sector, it is imperative that the investors are welcomed into a low-risk environment.
As per a survey across various market segments in 2016, India has done well to rise in the overall industrial process transparency scores. With strong policy moves, the government has succeeded in bringing better clarity and transparency in the real estate segment. Earlier, the scenario was quite hostile, especially for the foreign investors who believe in playing safe by investing in secure bubbles like New York, Paris, and San Francisco. Delays in project approvals and hiccups in finance, processing, and execution, have given out negative signals to investors about getting fast returns on their investments. However, liberalization of FDI empowered by improved market essentials and policy changes have strengthened the real estate niche. With the introduction of REITs, many major cities have come into the comfort zone.
Some of the policy reforms brought in by major cities in India are as follows:
- The Brihanmumbai Municipal Corporation (BMC) now has a single-window clearance in place for approval of construction projects. The Government of Maharashtra has introduced many other policies to increase transparency in the real estate market.
- The Government of Rajasthan initiated a Memorandum of Understanding with four private players in the real estate market, achieving more control over the whole process.
- The Government of Kerala has launched a software called Sanketham with the hope of standardizing the process of securing permits for construction projects under one online stream.
Real estate developers have caught the wind of change at the right time. With FDI opening up the Indian market to multinational majors, this paradigm shift has caused the Indian real estate developers to redress their accounting and management systems to match global standards. This overhauling will definitely prove beneficial to both industry players and investors.