February 7, 2018

The proposal in Union Budget for 2018-19 to cover units of business trusts under the new Long Term Capital Gains Tax is likely to push investors' return expectations from Real Estate Investment Trusts (REITS) higher.

Finance Minister Arun Jaitley has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit in his budget 2018. The capital gains arising from not only the transfer of equity shares or a unit of an equity oriented fund, but also units of a business trusts be covered under the new tax.

"REIT investors would have to now factor LTCG tax while evaluating investment opportunities which would increase their return expectations," said Bhairav Dalal, Partner - Real Estate Tax, PwC India.

The government and capital market regulator Securities & Exchange Board of India (SEBI) has been making efforts for long to attract REIT proponents for listing their trusts. However, the process that had started much ahead of the SEBI notifying the regulations in 2014 is yet to see any REITs listing.

The last year's announcements such as allowing banks, insurance and mutual funds to invest in these instruments have certainly pushed the real estate companies' interest level higher. However, rationalization of stamp duty, which falls under the state government's jurisdiction, is among factors that remain a key challenge for REIT listings.

According to reports and estimates, Indian real estate is likely to provide investment opportunity worth up to $77 billion through REIT-eligible commercial office and retail, properties across the country's top seven cities by 2020.

In the backdrop of impending introduction of REITs, large global as well as domestic institutional investors have already started increasing their exposure to commercial office assets. REITs are expected to provide commercial developers a liquidity option and retail investors a chance to participate in office realty market's growth.

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Source: magicbricks.com