Real estate investment trusts (Reits) aren't likely to be launched in India within at least a year. Reits are similar to real estate mutual funds where investors pool money to buy real estate assets; investors earn dividends through rental income. Reits, which can be listed on stock exchanges, enjoy tax benefits as these distribute most of their profits as dividend to shareholders. Sources in the Securities and Exchange Board of India (Sebi) have indicated the proposal to allow such instruments isn't being actively considered. However, there is a window under the newly-framed alterative investment fund (AIF) regulations that could allow investments in special purpose vehicles investing in properties. Sebi is considering providing some relaxations to such AIFs.
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Nowhere in the world have Reits worked without a tax pass-through status. Here, income tax rules do not have that provision. Unless the government takes such steps, the launch of Reits will be difficult," said S Sriniwasan, chief executive officer, Kotak Realty Fund. Rahul Rai, head (real estate investment business) at ICICI Prudential Asset Management Company, said, "There is an issue of multiple taxation in Reits. That needs to be addressed. It will take nine-12 months before Reits will become a reality," Rai said. "Though it is perceived to be less risky, there will be market risks such as rental fluctuations and vacancy." Simon Taskunas, partner at a Singapore-based commercial law firm, said many of his clients were closely following the events in India on the Reit front. "Any new Reit law in India should draw upon and be largely consistent with the Reit laws in Asia-Pacific which international investors are familiar with. This will equip India with an appropriate framework to attract foreign sponsors and investors into the new Reit regime," he said.