Real estate investment trusts might be launched
Real estate investment trusts (REITs) in all probability would not be launched within India in at least this fiscal.
As per sources belonging to the Securities and Exchange Board of India (SEBI), the proposal to permit REITs is not being actively pursued or even considered.
Howbeit, under the recently-framed Alterative Investment Fund (AIF) regulations there is a window which might permit investments within special purpose vehicles investing within real estate. SEBI is considering providing some relaxations to such AIFs.
Definition of REITs:
Almost like real estate mutual funds, in REITs, money or investments are pooled by investors to purchase realty assets; and investors then earn dividends generated through rental income.
REITs, which are eligible to be listed on stock exchanges, can take advantage of tax benefits as the bulk of their profits is distributed as dividend to shareholders.
Bottlenecks:
As per realty private equity players , regulations, including those pertaining to taxation and valuation, have been one of the major forces holding back the launch of REITs. Indian realty assets do not meet the existing regulations like the daily publishing of net asset values (NAVs).
Draft guidelines for real estate mutual funds were issued by SEBI in 2008. These guidelines were later withdrawn.
Due to the lack of such trusts within the country, Indian realty companies like Indiabulls launched listed property trusts within Singapore.
In accordance with real estate private equity players, REITs can sustain to be operational only with a tax pass-through status. This holds weight as successful REITs around the world enjoy a tax pass-through status. However, in India, income tax rules do not possess such provisions.
Advantages of REITs:
As per internationally renowned experts belonging to real estate investment business, the issue of multiple taxations within REITs is required to be addressed. This process would take considerable time, hence it would push the date for REITs becoming a reality by almost nine to twelve months.
REITs unlike any other mutual fund is not risk free. Although REITs are perceived to be comparably less risky, market risks such as vacancy and fluctuations in rental values would always persist and exist.
Leading experts from commercial law firms based out of Singapore, have indicated that the number of their clients who are closely following the events pertaining to REITs within India has constantly been growing. In case REITs are launched, these clients could be considered as potential investors, which would also attract FDI, and help the depreciating rupee gain ground.
Each new REITs law within India ought to draw upon and for the most past be consistent with the REITs laws in Asia-Pacific which international investors are aware and familiar with. This would equip India with an appropriate and a practically applicable framework to allure foreign investors and sponsors into the new REITs regime.
