#Budget2017: Industry Wants More Clarity On REITs
It was in 2014 when the government had approved the formation of the Real Estate Investment Trusts (REITs) in India. While there were too many positive voices in favour of REITs because it would have enabled small budget investors to put money in real estate. As the time progressed, the industry was left high and dry as no concrete steps were taken to make REITs investment a reality and popular amongst investors. Like every year, experts are pinning hopes on Union finance minister Arun Jaitley's speech on Budget day to announce better regime for such trusts and clarity on taxation policies.
While Budget 2016 cleared Dividend Distribution Tax (DDT) hurdle to make Real Estate investment vehicles more prudent, transparency on capital gain tax is still awaited to make the trusts functional and attract real estate enthusiasts to take benefits from the property market.
“The capital gain is taxable when REIT sells shares of assets or Special Purpose Vehicle. Developers or investors want to get rid of it. Though Finance Minister left the capital gains tax exemption at the hands of the sponsor but at the REIT level, it still remains a vital issue,” says Shram Chakravarthy, proprietor, Pengar Straits, one of the real estate advisory firms based in Kolkata.
Apart from this, stamp duty exemption is another level of tax benefits that developers are looking forward to. Other countries where REITs are active since long have exempted the asset from stamp duties which have resulted in the expansion of these investment vehicles in their financial markets. The foremost example is Singapore where REITs are operational and successful since years.
Though a few experts pointed out that this issue is not as big as DDT, but tax leakages at various points in REIT structuring are preventing big players from entering the market. Some of the prominent players that are expected to list their REITs soon are Blackstone-Embassy, Ascendas, RMZ, DLF and K Raheja.
While India is still struggling to find REITs listings, the neighbouring nation of Pakistan already has a few asset holders which are offering 9 per cent dividends. This has attracted non-resident Pakistanis to invest in the country's real estate without any physical liability, still earning grand through growing real estate cycles. The most probable reason behind the popularity of REITs is fewer complexities in taxation and eagerness of foreign investors to earn through unending investment prospects of Pakistani real estate.
While India is still in the policy formation stage, the Securities and Exchange Board of India (SEBI) has already notified norms for REITs but the various complications in terms of various kind of tax have made REITs unattractive. While there are many things to learn from other nations about the operation of Real Estate Trust, the foremost thing to do is to relax various charges associated with this investment channel, as demanded by industry stakeholders.
“Apart from that, GST's proper implementation, relief on income tax, more incentives for digital means of transacting and promoting REITs and InvITs might be amongst the highlights from the upcoming Budget,” says Ashok Gupta, CMD, Ajnara India Ltd.
“Rebates on income tax, clarity over GST and RERA, easing norms for FDI, making a route for REITs and InvITs easier and passage of the long-awaited land acquisition bill should be in the plan for the upcoming budget session 2017-18,” says Vikas Bhasin, MD, Saya Group.
It is a proven fact that REITs will open the door to institutionalised and foreign funding into the Indian real estate. To make it successful, it is imperative to make these trusts appealing through tax holiday for initial years or to exempt small unit holders from any kind of tax. While speculations are high, it is a matter of time when the government will make the demand a reality.