It was in September 2014 when market regulator SEBI notified norms for listing of new business trust structure Real Estate Investment Trusts (REITs). The strategy was planned with an aim to help attract more funds in a transparent way towards the Indian realty sector. Finance Minister, ArunJaitley, in the last year’s budget had officially provided the organization a ‘pass through’ status for the purpose of taxation. There were quite a few discouraging statements heard lately; especially from the JLL India Chairman and Country Head AnujPuri during the formation of Pre-Budget Wish list. He clearly indicated that till the time vital changes to the tax hurdles are seen REITs will remain dormant in its action period.
Being a latecomer to this market, India is trying to make its tax framework more conducive like other Asian counterparts, such as Japan, Hong Kong and Korea. The government too believes that REITs will help to expand the horizon of the Indian realty market.
Here’s a snapshot of the glorious history:
The ‘Rocket Booster’ Pointers
Let us have an in-depth preview of the advantages the organization can bring in:
1. Less Risky Investment & Dependable Incomes
With REITs in action, the investors thriving in the Indian realty sector and the general market will have safe and secure investment activities. Small& big investors will be able to experience less risky investment and unit holders will have access to a more and dependable income. Moreover, the cash trapped property dealers will also be able to reap benefits from policies comprising clauses on Exit Avenue and Liquidity.
2. Sigh of Relief for Commercial Real Estate Zones
SEBI’s fair decision of introducing REITs in India will bring in the much-needed respite for the commercial segment of the Indian realty sector. With this, the developers in this segment will be able to unlock value and create liquidity at the same time. Further, offshore investors are also eyeing upon the commercial arena of the Indian market with a hope that REITs will catapult the fate of the same manifolds. However, there is no clarity on stamp duty and taxation framework yet, which are two most important success boosters for the power-packed REIT.
3. Danger for Banks Expected to Diminish
The fruitful union of the Indian real estate market with the REIT will also help banks to win over some of the risks pertaining to assets. The banks operating in India have provided required construction funds to many projects in the residential as well as commercial segments. According to data analyzed by Cushman & Wakefield, there is around 57 million square feet of office space that is vacant in India. Further, about 200 million square feet of investible ‘Grade A’ leased offices are kept unsold and un-used. REITs can make use of these vacant spaces to generate rental incomes and thus huge bank funds can be utilized.
4. Added Incentives Expected
The introduction of REITs in India will bring in perks for the affordable housing segment of the Indian realty market. The real estate industry is expecting to receive incentives in the form of ‘Infrastructure Status’ for the housing segment. Apart from this, increase in Floor Space Index (FSI) tax incentives on construction material will also be encouraged. With all these incentives introduced in the Indian realty market, buyers will have the comfort to buy property at better rates owing to slashed out financing costs. However, recent reforms have already polished the rates of property in different Indian cities nicely. Further, with an increase in FSI, 15 to 20% of the housing shortage is expected to be tackled with ease.
5. A Delight for Overseas Investors
The Indian real estate sector is expected to ride even higher on the success of the increasedFDI inflows . REIT all set to start its operation officially soon, there are strong possibilities that the country’s realty sector will experience higher cash flows and investment from the foreign lands. Industry experts clearly say that the current REIT legislation will appeal to overseas investors as their tax will be merely 5% on capital gains and the positive part is that this will have dividends untaxed.
In a Nutshell
Indian REIT Regulations are well-conceived and at the same time these are actually the launch pads for introducing globally accepted practices to the real estate sector of India. The investments will be secured and cash-strapped developers can now breathe in life. Moreover, FDI inflows will also surge paving way towards making Indian realty sector, grandeur to watch for globally.
K. Altaf, Managing Editor, The Property Times
