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Market regulator SEBI has to address two key issues — multiple taxes and foreign investment — before attempting to resurrect the Real Estate Investment Trust (REIT) regime.
Industry body Asia-Pacific Real Estate Association (APREA) is meeting Finance Ministry officials next week to seek amendments to address these lacunae. On Thursday, SEBI rolled out draft regulations for the regime and a consultancy paper seeking industry comments.
“Typically, there is only one level of tax. However, investments in REITs would invite multiple levels of taxes. This is because developers create many special purpose vehicles (SPVs) for real estate projects,” said Ruchir Sinha head of debt and private equity at Nishith Desai Associates.
Other platforms such as Real Estate Mutual Funds have a single tax structure — distribution tax — while REITs would levy a 30 per cent tax on yield and a 15 per cent dividend distribution tax.
“So, this makes it tax inefficient,” Sinha said, adding APREA is suggesting a ‘pass-through status’ (tax advantage) at the SPV level or allowing to migrate the property from SPV to REIT.
The second challenge is attracting foreign investments. At present, there is no mechanism to permit foreign investment in REITs as these units do not fall under the securities category.
To enable their inclusion, amendments would be required in SEBI’s Securities Contract Regulation Act, 1956, notifying REIT as a security that can be listed. Similarly, amendments would be required in RBI’s regulations allowing FIIs to invest in REITs.
Currently, no Indian company has invested in REITs abroad, even though Hirco, Indiabulls and Fortis have invested in the Singapore Stock Exchange as Singapore Business Trusts.
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