REIT deferral: Impact on Realty

The Real Estate Investment Trust (REIT), which was expected to be rolled out in 2013, has been deferred by the Securities & Exchange Board of India (SEBI) despite the final draft guidelines already being prepared for the same. This decision was taken after some members of the board sought a clarification on tax benefits. This comes at a time when the market was welcoming the decision of the Reserve Bank of India (RBI) to withhold the hike in interest rates. With the elections round the corner, it is presumed that the new government will take a decision regarding introducing REIT.

Countries having introduced REIT:

Incidentally, many of the developed countries introduced REIT way back in the early 1960s. Many underdeveloped countries in Africa like Nigeria and Ghana also have realised the potential of such trusts ahead of India. In the Asia-Pacific region, many countries like Japan, Hong Kong, Australia, Singapore, Malaysia, UAE, Saudi Arabia, Philippines and Taiwan have benefited largely from such trusts so as to meet the demand for housing.

Opposition to REIT:

While the demand for REIT has been vociferous on the one hand, there are opposition voices that are ignoring the need for complete transparency in the real estate sector. This is inspite of them demanding such a provision earlier. Different provisions that include the Real Estate Regulator, Land Acquisition Act and REIT would enable to bring in complete transparency. Besides, it would also help in building a credible institutional mechanism so as to fund the real estate sector.

Acute shortage of housing units:

The fact that our country currently faces an acute shortage of housing units cannot be ignored by our policy makers and developers. According to projections made by a technical group formed by the Ministry of Housing & Urban Development, the requirement for housing units as per the 11th Five Year Plan was about 26.53 million. India is way behind achieving this target with the situation getting even more serious due to the migration of lakhs of youth every year to the metro cities, seeking job opportunities.

“Census towns” identified:

Apart from the metro cities, there are about 7935 “Census Towns” as per the 2011 Census as compared to the 5161 towns identified in the 2001 Census. The challenge and responsibility of providing a housing unit to every citizen of the country rests with the government in general and the state holders in particular. However, to fulfill this huge responsibility, it is essential that a mechanism of transparent funding like REIT should be implemented. This will enable in sending out the right signals to all the stakeholders concerned.