REIT candidates work to iron out wrinkles

One and a half months after the finance minister cleared the final hurdles for REITs (real estate investment trusts), probable candidates are working on some possible glitches before going ahead.

A REIT invests in real estate and trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate.

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• Blackstone, RMZ may roll out REITs first

In the 2016 Budget, the minister did away with dividend distribution tax (DDT) for such trusts, a major hurdle to floating one.

"We have made representations to Sebi (the markets regulator) and the ministry. There are some minor issues which we hope to see sorted in two to three months. All the changes suggested are in line with the provisions for listed companies," said Sunil Hingorani, director, finance, at K Raheja Corp, one of the probable REIT applicants.

REITs are similar to mutual funds, and can be listed and traded on stock exchanges. These have to distribute a majority of their income as dividend.

"We have said that instead of 36 months, 12 months should be considered for computing short-term capital gains. We have also asked for certain changes to the clauses on lending within group companies and carry-forward losses," said Hingorani.

A source aware of Blackstone's plans said the US-based investor was also examining the REIT laws. "They are studying individual ownership structures," the source said. Blackstone is the largest owner of office assets in the country, with about 30 million sq ft of office parks.

RMZ, one of the biggest owners of office assets and backed by Qatar Investment Authority, is looking to list in 2017 or beyond, said its executive chairman, Raj Menda.

"We need to ensure REIT investors and issuers like us can achieve the desired yields to ensure the growth of REIT markets in India," he explained.

"With the recent Budget announcements and based on my interaction with the industry, I am hopeful that during 2016-17, we will see a sizable number of REITs coming up," Sebi Chairman U K Sinha said recently here, after the first post-Budget board meeting of the capital markets regulator.

According to realty consultancy JLL, 80-100 mn sq ft of office space, worth at least Rs 100,000 crore, might qualify to be included under REITs. These assets could together generate an annual rental of Rs 6,000 crore.