CBRE seeks stamp duty waiver on commercial assets under REITs

Property consultant CBRE today pitched for waiving the stamp duty on commercial assets to be purchased by proposed Real Estate Investment Trusts, saying such a move would help REITs become a success in India.
Markets regulator SEBI had issued draft guidelines for REITs in October last year for comments by stakeholders. The final REITs regulations are likely to be considered for approval by the Sebi board this Sunday.
The new norms would enable listing and trading of REITs as any other security on the stock exchange platforms and also help create new platform for fund raising by realty firms.
"The India-REIT market needs to be perceived as more attractive for pricing and asset quality, as compared to the direct real estate market and other investment asset classes, for it to become a success," CBRE South Asia Chairman & MD Anshuman Magazine said.

A successful REIT market would require strong support from existing landlords (potential issuers) and investors, as well as favourable market conditions, he added.
Magazine also flagged concern about stagnant rental growth and oversupply of commercial properties.

Listing out 10 critical factors, related to the regulatory environment, market conditions and issuers/investors, for the success of REITs in India, CBRE recommended "lowering or waiving transaction costs for asset purchases by REITs".
"Lengthy registration processes and burdensome stamp duties (on properties) could hinder the establishment of I-REITs. In India, the transaction cost for physical assets typically ranges between 5-12 per cent, compared to 4-6 per cent in Singapore. This could act as a barrier to acquisitions by India-REITs and hamper growth," the consultant said.

The authorities would do well to follow the example set by Singapore, which waives stamp duty on REIT property transactions for five years after their listing, it added.
Among other suggestions, CBRE said the REITs should be launched during a positive market cycle and initial REIT portfolios should be restricted to prime office space in order to attract investors seeking stable income returns. It also felt the need to boost supply of investible assets.
Commenting on the report, CBRE's Head of Research- Asia Pacific Henry Chin said: "The establishment of REITs will be the single most consequential reform in the Indian real estate market for several years."

He expected the entry of this much-awaited investment instrument to provide alternative funding channels to the realty sector, besides giving investors an exit options.
Noting that establishment of the REIT market is still at a very nascent stage, Chin said the successful implementation and development depends on a number of factors, such as clear regulatory regime, faster and clearer structural reforms and increasing the supply of investible assets, among others".