Saturday, July 14, 2007

India's REIT hand downs

I am not a great supporter of self-regulation because it’ll end up being a free-for-all. The clichéd argument that violators would still abound is no argument for perpetuating lawlessness. But I prefer a quick and crappy regulation anyday to a slow and sturdy one that comes in well after an opportunity has taken flight.

Take India’s regulatory dilemma to let in REITs – similar to SEBI’s dilemma on Hedge Funds. Here the excuse offered is imperfect titles to property, surfeit of black money etc...In the US and UK, they had concerns over these funds too. Nonetheless they were let in with some early guidelines, however skimpy - that quickly helped capture the market opportunity, created jobs and liquidity reigned. But our regulators refuse to read from the same book, let alone from the same page. They are in no hurry to shed the appeal of roadblock contractors and opportunity destroyers. Why do we gladly accept political apathy as the hand we’ve been dealt…?
Andy Mukherjee drives home the point in this interesting article. Excerpts -

“The REIT debate in India is caught in trivialities -

Should the assessment of the value of properties be based on discounted cash flows or some other method? Should net asset values be disclosed once a year, or every quarter?

Perhaps the assessor should seek a legal opinion on each tenancy agreement to see if it is enforceable in a court of law? How about a due diligence on environmental clearances?

This mentality to codify the minutiae, to make no allowances for the seller's reputation risk or the buyer's intelligence, is a big damper. It's also irrelevant because the real, big risks in property investments in India are outside any valuation model. The ``fair value'' of property in India isn't just unknown. In the present state of the physical market, it's unknowable. That is what really needs to be disclosed. After that, it's ``buyer beware.'' That seems to be the pragmatic approach adopted by the Monetary Authority of Singapore.“
Well said, Andy… Hope those who matter hear you.

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