Will Developers' Demand For DDT-Free REITs Be Fulfilled In Union Budget?

Hit by a slump due to various factors, India's real estate sector will keep a close watch when Finance Minister Arun Jaitley reads his Budget Speech 2016 on February 29. The sector expects Jaitley to take much-needed steps that will provide an impetus to the sector.

One of the demands put forth by the sector is that Real Estate Investment Trusts (REITs) be exempted from the dividend distribution tax (DDT) and stamp duties. Stamp duties would lower the valuation of REITs, making them unviable and unattractive for foreign as well as domestic investors, sector experts say.

REITs allow anyone to invest in portfolios of large-scale properties and provide investors with regular income streams, diversification and long-term capital appreciation. To attract funds in a transparent manner, the Narendra Modi-led government had introduced REITs. Last year, Jaitley gave a breather to REITs on the minimum alternate tax (MAT) , saying that it would be applicable on them only when there is actual transfer of their units. However, there has not been a single REIT listing so far.

J C Sharma, Vice Chairman and Managing Director, Sobha Limited, said, “DDT is paid by the investors (industry players) including foreign investors upon receiving the dividend. At present, DDT is high, making REIT unattractive for investment. In other markets, where there is low tax regime, REIT has been very successful. Therefore, we want the government to remove or reduce this levy in order to promote REIT and boost investment.”

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Anshuman Magazine, Chairman and Managing Director (South Asia) , CBRE, wrote in his blog, “Directives to state governments to work in tandem on related regulatory changes are anticipated too, since certain aspects such as stamp duties are largely state subjects that would require state-level interventions for successful implementation. Considering that these required taxation changes have the potential to create a significant listed REIT stock, it is hoped that the government takes counsel from the real estate industry on the subject.”

Amit Oberoi, Head Valuation and Advisory, Colliers International India, told ibtimes.co.in that at the current rate of 15 per cent, the DDT made REITs unviable.

Echoing similar views, Anuj Puri, Chairman and Country Head, JLL India, said, “While the government has worked towards removing other bottlenecks, the DDT has remained a pending issue. Developers and other asset holders need the government to do away with it in the Budget. Until this vital change is made, REITs, which can almost single-handedly revive the Indian real estate sector, will remain pipped at the post.”