India's dilapidated infrastructure and real estate market is set to get a boost after the nation's securities regulator gave the green light for the creation of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (IIT) on Sunday.
"The decision just announced by the Indian securities regulator... after years of delays is great news," said Rajiv Biswas, chief economist for Asia-Pacific at IHS.
"It will support domestic and international investment inflows for the development of Indian smart cities, as well as mobilizing foreign investment inflows into other Indian real estate and infrastructure projects," he added.
India's real estate stocks surged on the news. DLF Ltd, India's largest real estate company, gained 3.5 percent in Monday morning trade, while Prestige Estates Projects Ltd rose 2.9 percent and Indiabulls Real Estate Ltd jumped 3.8 percent, amid hopes that the rule change would give the cash-strapped, debt-ridden sector a fresh source of financing.
"Companies like DLF own a lot of commercial real estate on their balance sheet so this development means they will be able to de-leverage their balance sheet significantly," said Shobhit Agarwal, managing director of Capital Markets in India at property research firm JLL.
REITs are listed instruments with exposure to income-producing real estate assets, which are normally commercial. Earnings from these assets are distributed to shareholders through dividends.
The Securities and Exchange Board of India (SEBI) also approved infrastructure investment trusts, REIT-like structures that allow developers to monetize their infrastructure assets through a stock exchange listing.