REITs may fetch $10 bn this fiscal itself: experts

Real Estate Investment Trusts will reduce pressure on banking system, avail fresh equity, attract long-term finance

Real Estate Investment Trusts (REITs), which now seems to be a reality, is likely to net a whopping $10 billion this fiscal itself, thus providing the much-needed funds to the cash-starved developers, say industry experts.

Finance Minister Arun Jaitley had announced in the Budget that REITs (real estate investment trusts) will get pass- through entity status and other incentives, including exemption from long-term capital gains tax.

“REITs will be the new funding mechanism for rental assets. This should bring in about $10 billion by March, of course subject to all the regulation by Sebi and stamp duty concessions by the state governments to be put in place,” city-based builder Hiranandani Group Managing Director Niranjan Hiranandani said.

A REIT is a company that owns, and in most cases, operates income-producing real estate properties by pooling in money from several investors. A pass-through entity does not have to pay corporate tax.

“The clarification that tax on the income earned by REITs will be a pass through, removes a major impediment to its attractiveness. This will allow channelising of funds from retail investors to the sector. They would also provide diversification benefit to real estate investors,” an analyst at India Ratings said.

REITs will reduce the pressure on the banking system, avail fresh equity and attract long-term finance from foreign as well as domestic sources, say experts.

“Dependence of developers on bank funding is likely to come down as REITs will enable them to get access to cheaper funds compared to debt which is costly. REITs will attract investments from long term-capital providers like pension funds,” Ernst & Young India tax partner Gaurav Karnik said.

“The pass-through entity status for REITs would pronounce a plethora of opportunities to developers and funds alongside addressing some sector specific issues of lack of transparency, organising the real estate industry among others,” Apex Multicons chairman Anant Pandit said.

However, when asked about the quantum funds that may flow into the market, he said it is too early to assess as Sebi has to notify the final regulations.