REIT spending may get delayed due to tax rules
The new tax rules seems unattractive to initiate selling of securities within 3 years.
The announcement of rules regarding setting up of Real Estate Investment Trusts (REITs) is likely to spur $20 billion property development in India. Market sentiments report that unless the country’s tax code is revised, REITs may find it difficult to take off India, said Anshuman, the Chairman of CBRE South Asia addressing media. He also mentioned that if these issues are not resolved, developers cannot expect incentives to take the trust route.
REITs is likely to provide a new source of funding to the debt laden developers in India to construct commercial properties as per the PMs attempt to revive the country’s economy. But the tax rules are making it unattractive to sell securities within 3 years and this may result in prolonging the wait for greater transparency in the sector. The real estate sector in India is already notorious for his lack of transparency regarding pricing.
The Securities and Exchange Board of India (SEBI), who acts as India’s market regulator released a rule for establishing REITS on September 2014, giving investors a chance to participate in the country’s real estate market without making direct investments. The trust will also own assets valued at least Rs.500 crore for which the investors will have to put a minimum of Rs.2 lakh.
The tax bill for starting REIT being likely to be more than that of raising money for the initial share sale, this can be deterrent to creating or making investments in REIT. Bhairav Dalal, Associate Director for tax and regulatory practice at PricewaterhouseCoopers in Mumbai also agrees to Anshuman’s view and mentioned that there is a need of a finance bill to change certain rules like the tax costs which is likely the impact the returns that are offered to the investors. At present, the investors are disadvantaged by REIT, because as per the current rules, shares in them are to be held for three years to get tax exemption from capital gains, unlike the investment in others like the listed securities, which offers tax gain after one year.
There is also a lack of clarity regarding when REIT is likely to pay the minimum tax alternative. The Chairman of SEBI revealed that they are in talks with the finance ministry to resolve this issue, which is hindering the listings in REIT.
Anubhav Gupta, a Mumbai based real estate analyst revealed that the first REIT is not likely to take place till March 2016. As per the estimations made by Cushman and Wakefield, the REIT funded assets are likely to reach $20 billion by 2020.
According to them, India has been in the top five in the world market for the last seven years with an average net demand of more than 30 million square feet.
The developers that are likely to be benefitted by REIT include DLF limited, Prestige Group, Phoenix Mills, and Oberoi Realty Limited
Source: LiveMInt
CBRE South Asia, Cushman & Wakefield, Investment, Real Estate in India 2020, Real Estate Investment Trusts, REIT, REIT Tax rule, SEBI, Securities and Exchange Board of India, tax rules
