REITs can be a game changer in realty market

Q: HI, Now a days a news comes to hear that REITs can be a boon for the industry to tap into structured, institutional sources of funding. Can anybody tell me how?

Sujan Mitra,

23rd July 2014

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Replies (4)

Hey Sarith......
Don't be so pessimistic. The current tax system for REITs in India leads to multiple levels of taxation, as a result of that contrarily affecting the yield to investors and making REITs unattractive for investment. For REITs to become mainstream vehicles for large nos of investors, it is essential to get the tax regime for REITs in India at face value with the international tax system.

jitu jayswal,

11th September 2015

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Right Jitu......
India has potential. The top 7 cities of India together have more than 400 million square feet of operational office space, This is expected to grow by approximately 25 million to 30 million sq-ft. annually. Of this office stock, more than 150 million sq- ft will be ready for REIT listing,

Pranab Malakar,

11th September 2015

Hope so.....we are looking forward to seeing REITs launched in India in the coming year. Industry wide, there will be limits on what assets can be transferred to REITs. A significant part of that needs to be discounted for quality. We don't see the opportunity for significant non-office REITs, particularly residential, as the rental market is quite informal and break into pieces.

Sarith, Noida

11th September 2015

The growth rates and the need for outside capital mean China and India could lastly offer investors appealing options such as the REITs popular in Japan, Australia, and Singapore.

We see that development of REIT markets in these countries adding to the depth of the overall REIT market in the region and attracting significant investment into Asia.

Sarith, Noida

11th September 2015

Comment

Absolutely right.....
In recent modifications by the government include removing long-term capital gains tax on the transfer of REIT units by sponsors and minimum alternative tax (MAT) when it transfers shares to the REIT and when it sells units of REITs. many prominent builders have applauded the moves. It mentioned in May that it could set up its first REIT by March 31, 2016, the end of its fiscal year.

Pranab Malakar,

11th September 2015

I don't think REIT will set up so soon in India. Still, some barriers remain. One is dividend distribution taxes (DDT) and stamp duty on the transfer of properties. The lack of clarity on DDT has acted as a discouragement for the real estate players and the private equity players to launch REITs in the country,

Sarith, Noida

11th September 2015

Hi,
It is expected that the by 2050 more than 300 million persons are expected to be added to India’s working age population. If it happens then this will add to growing urbanisation and the need for housing facilities for this section, including the increasing number of women in the workforce.

Bulbul Verma,

23rd July 2014

Comment

@Bulbul,
Yes, you are right, the introduction and implementation of Real Estate Investment Trusts can help bring the needed investments for meeting this increasing demand. Various industry reports have pegged the investments required in the Indian real estate market by 2015 to be approximately $42 billion (excluding EWS housing) and approximately $257 billion (including EWS housing). Residential real estate alone will require an investment of $29 billion.

Veena K,

23rd July 2014

@Veena,
Not only this REITs will bring increased transparency in the sector by adopting better corporate governance. By providing institutional exits to funds that invest in realty projects, REITs encourage developers to take to public financing as a new source of project funding. This way they also help the industry to become more transparent to conform with the stringent and continuous reporting requirements and disclosure norms required of publicly-owned firms.

Bulbul Verma,

23rd July 2014

@Bulbul,
Then certainly implementation of REITs in the country would be a welcome step and would help open a new and invigorating chapter for the real estate industry.

Veena K,

23rd July 2014

Hi,

REITs Not only can create a level playing field for common investors to share the gains of this asset class but it can also become a game changer in many other ways. By encouraging public ownership, it can provide the framework for real estate companies to become more transparent and better managed.

Veena K,

23rd July 2014

Comment

Hi everybody,
While institutional and retail investors of both India and China have had a sampling of Asian real estate through REITs, in a sense they still have been shut out of the continents most significant economies. As each country has taken steps to open up its market to outside capital that could change in the coming years.

Supratim,

11th September 2015

Yes, at this point, both the countries have potential. India has made recent key policy changes to allow REITs, which are expected to first hit the market next year. It is just a start, by looking at the numbers, both countries offer huge potential in part due to their vast populations. In China, Penghua-Qianhai-Vanke "REIT" listed on the Shenzhen Exchange in July, 2015.

Veena K,

11th September 2015

@Veena.K,
Remember that both of these countries have witnessed growth in gross domestic product (GDP) much greater than their developed counterparts. Real GDP in India is predicted to grow by 7.6% in 2016, up from a pace of 6.9% in 2015, according to the Organization for Economic Cooperation and Development.

Supratim,

11th September 2015