Thursday, 14 July 2016

Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) could become a reality now and the first listing is expected in the next 12 months as markets regulator SEBI has eased norms to attract realtors and investors. The relaxation is aimed at allowing these Trusts to invest more in under-construction assets and have a larger number of sponsors.

Introduction of REITs in Indian real estate market is likely to be a game-changer. A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Created by the U.S. Congress in 1960,REITs were designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.

As of August 2014, India approved creation of real estate investment trusts in the country. The government and Securities and Exchange Board of India through various notifications is in the process of making it easier to invest in real estate in India directly and indirectly through foreign direct investment, through listed real estate companies and mutual funds. In the budget of 2014, Union Finance Minister Arun Jaitley has introduced a law for setting up of REITs. 

REIT is a trust that holds real estate assets like buildings, office premises, land banks, among others. The units or securities of REIT are required to be listed on a recognised stock exchange and it provides retail investors an opportunity to indirectly hold stake in real estate assets. India is yet to see a substantial interest with regard to REITs being set-up by real estate companies. One of the key reasons for this is the current income tax mechanism which provides for levy of Dividend Distribution Tax at SPV level on distribution of dividend to REIT.