Mumbai : Real Estate Investment Trusts (REITs), which now seems to be a reality, is likely to net a whopping $10 billion this fiscal itself, thus providing the much-needed funds to the cash-starved developers, say experts.
Finance Minister Arun Jaitley had said in the Budget that REITs (real estate investment trusts) will get pass- through entity status and other incentives, including exemption from long-term capital gains tax. “REITs will be the new funding mechanism for rental assets. This should bring in about $10 billion by March, of course subject to all the regulation by Sebi and stamp duty concessions by the state governments to be put in place,” city-based builder Hiranandani Group MD Niranjan Hiranandani said.
A REIT is a company that owns, and in most cases, operates income-producing real estate properties by pooling in money from several investors. A pass-through entity does not have to pay corporate tax.
REITs could be listed on the bourses like company shares and allow retail and institutional investors to buy or sell those securities.
“The clarification that tax on the income earned by REITs will be a pass through, removes a major impediment to its attractiveness. This will allow channelising of funds from retail investors to the sector. They would also provide diversification benefit to real estate investors,” an analyst at India Ratings said.
“Dependence of developers on bank funding is likely to come down as REITs will enable them to get access to cheaper funds compared to debt which is costly. REITs will attract investments from long term-capital providers like pension funds,” Ernst & Young India tax partner Gaurav Karnik said.