Valuations, taxation issues main issues for launch of real estate investment trusts

Real Estate Investment Trusts (REITs) will take at least a year or more before they become reality in India as several issue plague the launch of such instruments.

REITS are like real estate mutual funds where investors pool money to buy an real estate asset. Investors earn dividends through rental income. REIT, which can be listed on stock exchanges, enjoy tax benefits as they distribute majority of their profits as dividend to their shareholders.

Sources in Sebi have indicated that the proposal to allow such instruments is not actively consideration. However, there is a window under newly framed alterative investment fund (AIF) regulations that could allow investments in special purpose vehicle (SPVs) which invest in properties. The securities regulator is considering providing some relaxations to such AIFs.

Though capital markets regulator Sebi issued draft guidelines for real estate mutual funds, which are similar to REITs in 20010, which were later withdrawn.

Indian companies such as Indiabulls have their listed property trusts in Singapore earlier in the absence of such trusts in india.

Regulations relating to valuation, taxations and others have held back the launch of REITs, said real estate private equity players at the Asia Pacific Real Estate Association’s event on REITs here today.

'Indian real estate assets do not meet existing regulations like daily publishing of NAVs (net asset values). Nowhere in the world, have REITs worked without tax pass through status. Here, income tax rules do not have that provision. Unless, government take such steps, launch of REITs will be difficult,' said S Sriniwasan, chief executive officer Kotak Realty Fund.

Added Rahul Rai, head - real estate investment business at ICICI Prudential Asset Management Company:'There is an issue of multiple taxation in REITs. That needs to be addressed.  It will take nine to 12 months before REITs will become a reality,' Rai said.

'Though it is perceived to be less risky, there will market risks such as rental fluctuations and vacancy with it,' Rai said.

Simon Taskunas, partner at Singapore based commercial law firm said many of their clients are closely following on the events that have been happening in India.

'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 help India with an appropriate framework to attract foreign sponsors and investors into new REIT regime,' Taskunas said.