The Indian REITs Association (IRA) supports the RBI's new policy for banks to lend to REITs. This move is seen as a landmark decision providing stable, long-term capital and strengthening the financial framework for the commercial real estate sector.
The Indian REITs Association (IRA) has expressed strong support for the Reserve Bank of India's recent decision to permit banks to lend money directly to Real Estate Investment Trusts. Announced by RBI Governor Sanjay Malhotra during the latest Monetary Policy Committee meeting, this policy shift is expected to provide the commercial real estate sector with much-needed access to stable, long-term capital.
A Landmark Move for Financial Stability
According to the association, "This landmark move strengthens the financial framework for REITs and supports their long-term growth." A major highlight of this decision is the stability it brings to how REITs manage their money. Because these trusts own large assets like office buildings and malls that earn income over many years, they need borrowing options that match those long timelines. The IRA pointed out that having "direct access to bank lending provides REITs with a stable, long-term source of funding."
Expanding Funding Avenues and Reducing Costs
They noted that this change is crucial because it expands "the avenues of fund raising for these instruments," which is essential for an asset class built on "long-duration, income-generating real estate." The association also believes that being able to borrow from banks will lead to lower interest costs. Currently, many REITs raise money by issuing debt securities to investors like mutual funds or non-banking financial companies. These investors usually prefer shorter commitments of three to five years, which makes it difficult for REITs to secure money for the long haul. The IRA explained that "the ability to borrow at the REIT level is also expected to result in more efficient financing costs," especially since "long term funding remains a challenge" under the current system.
Driving Sector Growth and Formalisation
Ultimately, the industry sees this as a step toward making India's real estate market more professional and institutionalised. With the new flexibility to borrow from banks, REITs will be in a better position to buy more properties and grow their portfolios. The association stated that with this "greater financial flexibility," REITs will be "better positioned to support portfolio expansion and contribute to the formalisation" of the country's commercial property sector.
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