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Cash-strapped real estate players can have another stream of investment with capital market regulator, the Securities Exchange Board of India, proposing to list Real Estate Investment Trusts (REITs). The industry said the move would boost fund inflow besides providing an exit route to investors after RIET’s implementation.
However, industry watchers note that clarity is needed on whether foreign investments are permitted in the proposed REITS besides clarifying the tax treatment of such trusts. REIT is an instrument for raising funds in the realty sector. They are tax-efficient listed entities that mainly invest in income-producing real estate assets from which most of the earnings are distributed to their shareholders. It will be set up as a trust under the provisions of the Indian Trusts Act, 1882.
Samantak Das, Chief Economist and Director-Research, Knight Frank India, said, “The timing of this move is also very important keeping in mind the prevailing paucity of funds coupled with the ongoing slowdown in the economic growth.”
Anshuman Magazine, CMD, CBRE South Asia, said, “Once in place, it will provide an additional exit route for investors and enable retail money to be channelised into India’s realty sector through a regulated network.”
Sanjay Dutt, Executive MD, South Asia Cushman and Wakefield, said the move to issue this consultation paper will revive substantial investor interest from domestic and global investors in India.
“We have roughly over 57 million square feet of office space vacant in India, with approximately 132 million sq.ft. of additional office demand by 2017 and approximately over 200 million sq.ft. of investable Grade A leased office assets ‘not sold’, which would be quickly monetised through REITS at a cap rate of 9 to 10.5 per cent. Corporate & IT companies, which own large office buildings and parks, could unlock value and invest in businesses through REITS,” Dutt said.
The regulator said REIT could raise funds from any investor — resident or foreign. However, till the market develops, it is proposed that the units of REITs may be offered only to high net worth individuals or institutions.
Gaurav Karnik, tax partner, Ernst Young, said “What is required for the REITs to take off on a steep curve would be for the RBI to clarify that foreign investments is permitted in the proposed REITS and Revenue authorities to clarify the tax treatment including, but not limited to, pass through status for the REIT as well as stamp duty exemption."
Anuj Puri, Chairman, Jones Lang LaSalle India, said “The cautious approach adopted by SEBI during this initial period is acceptable and appreciable.”
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