July 17, 2014 Leave a comment
A REIT can be set up by a real estate developer or a private equity fund by pooling together rental real estate assets -office buildings, malls, warehouses -into a trust.
A REIT issues units that are traded like a mutual fund unit on any exchange that it is listed on.Like shares represented ownership in a company, a unit of REIT represents ownership of a pool of rent producing real estate assets, or of a company owning a real estate project.
Capital market regulator Sebi will shortly announce final guidelines for REITs.
So what does this mean to retail investors?Investments in REITs will be backed by assets, so they will be ideal for retail investors who want to get a piece of Indian real estate but without the hassles of property titles and other regulatory risks.
And how will REITS help real estate companies?
REITs will provide an exit option to real estate developers and to funds that own a stake in income-producing assets across India. It will provide builders a cheaper source of capital and the muchneeded liquidity to those who are highly leveraged. It will also reduce the exposure and risk assumed by the Indian banking system in the real estate sector.
Market regulator Sebi had notified the regulations for REITs last year, but there was lack of clarity on tax benefits for the new product from the govt’s side.There was a concern over double taxation of REITs.The finance minister,Arun Jaitley, announced in this budget that REITs will have pass through in relation to income from the project, which will eliminate multiple taxation.So.now REITs are likely to take off.