REITs: What Investors Need to Know
Now, small investors can earn rental income from commercial properties like office space and malls. Bangalore, the IT capital of India, is expected to see the most action after the Securities and Exchange Board of India (Sebi) approved the setting up of real estate investment trusts (REITs), a move that may offer a new source of financing to India's cash-strapped property developers.
Top 10 Things to Know:
A real estate investment trust (REIT) is an entity listed on stocks markets that owns rental-yielding real estate assets such as leased office and shopping malls. REITs distribute most of their income to shareholders as dividends. Investors also gain from the appreciation of underlying assets.
According to estimates, more than 150 million square feet of office space in major Indian cities could be eligible for listing as REITs. Bangalore tops the list with REIT-suitable space of over 100 million square feet of office space, said JC Sharma, VC & MD of Sobha Developers.
REITs will be required to distribute not less than 90 per cent of their net distributable cash flows to investors at least every six months.
To become eligible for listing, the value of the assets owned by a REIT should be worth at least Rs. 500 crore. The lower threshold of Rs. 500 crore will help to put more assets under REITs, said Bhairav Dalal, associate director at PwC India.
REITs will be allowed to invest only in commercial properties.
REITs can raise funds only through an initial offering similar to initial public offering (IPO) for equity shares. The units of REITs have to be mandatorily listed on a stock exchange and the minimum issue size has to be Rs.250 crore.
For investors, the minimum subscription size for units of a REIT on offer will be Rs.2 lakh and at least 25 per cent of the units have to be offered to the public. Trading lot for such units shall be Rs. 1 Lakh.
According to Sebi norms, not less than 80 per cent of the value of the REIT assets shall be in completed and revenue generating properties. A REIT shall invest in at least 2 projects with not more than 60 per cent of value of assets invested in one project.
Deven Choksey, MD of K R Choksey Securities, says he expects inflows of Rs. 60,000 crore to Rs. 100,000 crore to the real estate sector from REITs. Real estate investment trusts would also help impose discipline on real estate players and the dollar inflows would also help to curb the rupee volatility, he added.
Mr Dalal of PwC says REITs would be taxed in the same way as corporates. On dividend, there will be there will be full tax, corporate tax plus the dividend tax. Dividends paid by a domestic company are subject to the dividend distribution tax at an effective rate of 16.995 per cent. Dividend subject to DDT is exempt from tax in the hands of the investors. Sebi is expected to notify REIT norms from October 1. (With Agency Inputs)
Source - NDTV.profit