Though Real Estate Investment Trusts (REITs) are expected to be a game changer for Indian commercial real estate sector, a IVCA-KPMG study has identified several key taxation and regulatory gaps in Indian REITs framework.
The study – ‘Destination India-Are we ready for REITs?’ launched at the ‘Real Estate Private Equity & REITS Conference’ today highlighted the concerns which may be the roadblocks for implementing REITs successfully.
“Real estate is a capital intensive sector. But it also requires expertise in a variety of areas for investments to be successful,” Arvind P. Mathur, President, IVCA, said in a statement released by KPMG.
The quality and track record of developers and sponsors, standards of corporate governance, the variety of business models being pursued (including asset-light models) and the diversity of India were all important factors, he said.
“This study addresses the intricacies of real estate investing, deal structuring and taxation in India. The publication is all the more important, because many of the regulations are in a state of flux,” Mathur said.
According to Neeraj Bansal, Partner and head of real estate and construction, KPMG in India, the country has an estimated 350 million square feet of ‘Grade A’ office space valued at about $ 65-70 billion. These are mainly in Delhi-NCR, Mumbai, Bangalore, Chennai, Pune, Kolkata and Hyderabad.
Of these assets, around 80-100 million square feet is estimated to be eligible for REITs in the next 2-3 years valued at about $ 15-20 billion.
“High rental yields and moderate capital appreciation, together makes India a bright spot among global investors,” he said.
Apart from ‘Grade A’ office space, there are shopping centres, retail malls, hotels, industrial warehouses, and hospitals which are eligible for REITs, he added.
The study found that REITs are likely to infuse additional transparency and liquidity in the Indian real estate market. With local developers showing interest to list Indian assets offshore, especially in Singapore Stock Exchange, setting up of REITs framework in India is likely to attract such markets onshore and also increase the depth of Indian capital markets.
From a private equity perspective, REITs may create exit opportunities for developers and existing investors allowing them to move completed assets to REITs and improve the long-term liquidity in the market.