SEBI announces REIT, InvIT regulations
The final guidelines for REITs (Real Estate investment Trusts) was announced by the capital markets regulator SEBI (Securities and Exchange Board of India) on Sunday. The property players were given enough room to float and these guidelines also built-in adequate safeguards for the investors.
The minimum size of assets that a REIT must have, to be able to float an initial offer, has been halved to Rs 500 crore from the originally envisaged Rs 1,000 crore which is expected to allow more developers to list them in the stock exchanges. The lower threshold is expected to encourage the mid-sized developers to participate.
If the REITs choose the special purpose vehicle (SPV) route, they must have a controlling interest of at least 50 % in commercial real estate. This has increased their accountability. Further, the SPV must hold at least 80 % of the assets directly in properties and cannot invest in other SPVs. This move is probably aimed at preventing funds from being funnelled into numerous entities.
SEBI on Sunday also announced guidelines for Infrastructure Investment Trusts (InvITs), to attract funds to the space, most of which appear reasonable. The experts stated that as the infra projects are capital intensive, with a debt-equity ratio of 3:1, it could be a challenge to comply with the condition that consolidated borrowings should not exceed 49 % of the value of the InvIT’s assets.
Ashok Tyagi the Group CFO of the largest developers in India DLF Ltd. stated that even if the tax is levied at the time of sale of REITs, they need to understand whether the tax treatment will be like that for equity shares or the way it is for mutual funds. They are waiting for more clarifications on the tax structure.
The government, via the Finance Bill, cleared the way for the introduction of the REITs and InvITs in May. And during the budget the finance minister announced them. SEBI chairman, UK Sinha, observed that when the SPV is transferred to the REIT, at that stage there would be a tax deferral.
Sinha clarified that at that stage, the tax will not have to be paid. When the investor in that original project SPV finally disposes off his property at that stage he will be paying the tax. While REITs can have multiple sponsors, their number is capped at three each of whom must own at least 5 % of the units.
Moreover, even after three years of listing, they must hold a minimum 15 % throughout the life of the REIT. InvITs shall invest in infra projects directly or through an SPV; for PPP projects, such investments shall only be through an SPV. SEBI has come up with all these guidelines which is expected to give a boost to the ailing infrastructure sector.
Source- The Financial Express
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