Govt moots smoother foreign investment norms for REITs

To remove any regulatory hurdle coming in way of foreign investors putting money in the newly created Real Estate Investment Trust (REIT) structure, the government has proposed allowing overseas investments in this space within the FEMA regulations.
The proposed move, to be discussed by the Union Cabinet soon, aims to allow such foreign investments as an exception to the overall prohibition on foreign investors to engage in the real estate business within FEMA (Foreign Exchange Management Act) regulations, sources said.
The Finance Ministry will soon approach the Cabinet with a proposal in this regard, they added.
While capital markets regulator Sebi notified its REIT Regulations in September, there have been some procedural issues with regard to certain regulations including FEMA and the FDI Policy coming in way of such structures taking off.

The proposed relaxation is expected to help those entities, which are registered and regulated under the Sebi norms, to access foreign investments through their REITs.
REITs can be listed and traded on stock exchange like shares or any other security and also help create new platforms for raising of funds by real estate companies.

Despite significant tax benefits for the sponsors of these business trusts, these new regulations would also be "revenue accretive" for the government in form of taxes.
The move comes at a time when the government is taking several steps to boost foreign investments in the country. Recently it has relaxed foreign direct investment (FDI) policy in pharmaceuticals sector and insurance sector.

During April-October this fiscal, the country has attracted USD 17.34 billion FDI, an increase of 26 per cent as compared to the same period last year.
Earlier on September 26, Sebi had notified norms for listing of business trust structures, REITs and InvITs that would help attract more funds in a transparent manner into realty and infrastructure sectors.
Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvITs) would also get tax incentives. Along with foreign investors, domestic institutions like insurers, pension funds and provident funds would also be allowed to invest in these trusts.
To ensure transparency, these trusts would be subject to stringent norms on disclosure as well as related party transactions.

In the case of REITs, the minimum public holding should be 25 per cent.
They would help in channelising domestic investments into real estate and infrastructure sectors, and also help attract foreign capital for these fund-starved segments of the economy.