REITs progress towards reality

Q: Is it true that incorporation of REIT under Foreign Exchange Management Act will fast-track developers & industry watchers listing in the domestic market?

Aneek Das,

20th May 2015

Real estate News in Mumbai

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foreign exchange management act

ddt exemption

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Replies (7)

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.

Saras, Noida

11th September 2015

Comment

Hi all,
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.

Praveen Modi, Mumbai

11th September 2015

Comment

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,

Deepankar Godbole, Mumbai

11th September 2015

Bilkul sahi kaha Deepankar ji......
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.

Praveen Modi, Mumbai

11th September 2015

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,

Chandra Kantraut, Pune

11th September 2015

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.

Deepankar Godbole, Mumbai

11th September 2015

Comment

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.

Chandra Kantraut, Pune

11th September 2015

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.

Deepankar Godbole, Mumbai

11th September 2015

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

We see 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.

Chandra Kantraut, Pune

11th September 2015

Hi all,
There is a question always arising in my mind when i heard the news about REITs move into realty sector. What is DDT Exemption? And how it will help the realty market?

Ramya Janagam, Hyderabad

21st May 2015

Comment

Gud morning Ramaya,
Good question! There are lot's of people in India who don't know the exact meaning of DDT Exemption and this reply is for them. Dividend distribution tax is the tax levied by the Indian Government on companies according to the dividend paid to a company's investors. As per existing tax provisions, income from dividends is tax free in the hands of the investor. There is a levy of 15% of the dividend declared as distribution tax. This tax is paid out of the profits/reserves of the company declaring the dividend.

At a time when the realty sector is struggling for alternative ways of funding, REITs will improve liquidity in the commercial real estate market.

Shyam Sundar, Chennai

21st May 2015

Thanks once again Nikhil,
Now, i understand why many real estate player such as Unitech, DLF, Embassy, Prestige, Supertech and Blackstone have disclose their interest in REIT listings as an alternate mode of fund raising.

Saran,

20th May 2015

Comment

My question to Saran, what is liquidity infusion step and how it will help the real estate market?

Sandeep Mhatre, Mumbai

20th May 2015

Gud morning Sandeep,
A "liquidity injection or Liquidity Infusion Steps" is when the Federal Government gives money to a private entity such as a bank or automobile manufacturer in order to support them in difficult times and hopefully keep them in business. It will help the real estate-linked financial instrument to attract foreign funds.

Chetan Hansraj, Bangalore

20th May 2015

Do you think that the step taken by the government will boost the realty market? How it will help the commercial and real retail market?

Sandeep Mhatre, Mumbai

20th May 2015

Well Sandeep,
We are waiting for the cabinet approval and once it will approve by the cabinet, i am sure that the measure which are taken will boost fund flows and paved the way for infusing much needed into the realty market. This move will also hasten construction activities.

REITs are instruments which allow owners of rent yielding assets (commercial and retail) to raise money from investors by pooling and listing them as a trust.

Siddharth Rana, Pune

20th May 2015

Hi Sran,
As i know, it is an investment trust where an individual can invest either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specialize in public real estate.

An added benefit to investing in REITs is the fact that many companies are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels.

Chetan Hansraj, Bangalore

20th May 2015

Comment

Thanks Chetan,
How many types of REITs and which are their mode of operation?

Saran,

20th May 2015

Hi Aneek,
Yes, it will definitely fast-track their listing in domestic market. Earlier in 2014-15 Union Budget Finance Minister announced that capital gains tax on transfer of property from developers' main company to a listed company - a special purpose vehicle (SPV) formed for the purpose of running REITs.

N.Mathur, Delhi-NCR

20th May 2015

Comment

Hello Sir,
I wanted to know the meaning of REIT? Need more details on the REIT?

Saran,

20th May 2015

@Saran,
There are three main types of REITs, equity REITs, mortgage REITs and hybrid REITS. Equity REITs own, operate and trade hard real estate assets whereas Mortgage REITs trade commercial and residential mortgages and hybrid REITS are a combination of both equity and mortgage REITs.

N.Mathur, Delhi-NCR

20th May 2015

Thanks for the explanation Nikhil,
Can you tell me what is the difference between a REIT and a real estate fund?

Saran,

20th May 2015

Well Saran,
As i know both real estate funds and real estate investment trusts (REITs) are used when diversifying a long-term investment portfolio. A real estate fund is a type of mutual fund that mainly focuses on investing in securities offered by public real estate companies. Whereas a REIT is a corporation, trust or association that owns or finances income-producing real estate.

N.Mathur, Delhi-NCR

20th May 2015