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REITs may fetch $10 bn in year one, say experts

business Updated: Jul 13, 2014 22:26 IST

Real Estate Investment Trusts (REITs), which now seems to be a reality, is likely to net a whopping $10 billion (around Rs. 6 lakh crore) this fiscal itself, providing much-needed funds to the cash-starved developers, industry experts said.

Finance minister Arun Jaitley had announced in the budget that REITs will get pass-through entity status and other incentives, including exemption from long-term capital gains tax.

“REITs will be the new funding mechanism for rental assets. This should bring in about $10 billion by March, of course subject to all the regulation by Sebi and stamp duty concessions by the state governments to be put in place,” said Niranjan Hiranandani, managing director, Hiranandani Group.

A REIT is a company that owns, and in most cases, operates income-producing real estate properties by pooling in money from investors. A pass-through entity does not have to pay corporate tax as the income from the entity is treated as personal income of the shareholders and taxed likewise.

“The clarification that tax on the income earned by REITs will be a pass-through, removes a major impediment to its attractiveness. This will allow channelising of funds from retail investors to the sector and provide diversification benefit to real estate investors,” an analyst at India Ratings said.

Experts believe that REITs will reduce the pressure on the banking system, avail fresh equity and attract long term finance — such as pensions funds — from foreign as well as domestic sources. “REITs will enable developers to access to cheaper funds compared to debt” said Gaurav Karnik, partner-tax, Ernst & Young India.