Property Matter Advocate On Formation of REITs

by Abhinav K. Digital Marketing Expert, Freelance

In a latest development in country's real estate market the Securities and Exchange Board of India(SEBI); the capital markets regulator approved rules for the creation of Real Estate Investment Trusts. These trusts would be given a tax pass-through status which means that they wouldn't have to pay any federal taxes as long as they pass most of their income to shareholders in the form of a dividend. REITs will help to provide a new source of funding for real estate developers and investment through foreign as well as domestic investors in infrastructure projects. This will be a positive move for the Indian capital markets and could also enhance liquidity in the sector." Kislay Pandey - Property Matter Advocate, the Supreme Court of India.

Real estate developers, banks, consultants, investors and prospective buyers all welcomed the arrival of REITs and they are optimistic that changed government at the Centre, new laws and transparent policies and existence of REITs will boost the growth of India's realty sector to the new heights and different old and new developers will continuously come up with various residential and commercial projects.

"The growth of real estate is the foundation of a stronger and developed India. That was how & why REITs came into existence. Countries like China and Japan already benefitting from the REITs and once again India depicted a slow approach in establishing regulatory institutions. Anyway, better late than never, REITs will help in accomplishing the task of strengthening India’s infrastructure."- Kislay Pandey - Property Matter Advocate, the Supreme Court of India.

The rules finalized by the Securities and Exchange Board of India conforms that only commercial properties, such as office buildings can be part of a REIT, and all REITs have to be listed on a stock exchange. To be eligible for listing, the value of the assets owned or proposed to be owned by a REIT should be worth at least 5 billion rupees. REITs will be required to distribute not less than 90% of their net distributable cash flows to investors at least every six months.

Under the rules, at least 80% of the value of the Real Estate Investments Trust's assets must be in properties that are completed and generating revenue. A REIT can invest only 10% of the value of its assets in properties that are under construction, Sebi said. REITs can also invest a small portion in other securities like mortgage-backed securities and money market funds.