In a major boost to Real Estate Investment Trusts, the government today approved changes to FEMA regulations that will allow such instruments to tap foreign funds.
Currently, REITs -- which are mainly aimed at bringing in funds into the realty sector in a transparent manner -- are prohibited from getting overseas investments under Foreign Exchange Management Act (FEMA).
"The Union Cabinet, chaired by Prime Minister Narendra Modi, has given its approval to allow the Real Estate Investment Trusts (REITs) as an eligible financial instrument/ structure under FEMA 1999," an official statement said.
The Cabinet approval came days after the government clarified that minimum alternate tax (MAT) would be applicable on REITs only when there was actual transfer of their units.
"The approval is expected to enable foreign investment inflows into the completed rent yielding real estate projects, which is, as of now, prohibited under the FEMA Regulations," the statement said.
Following the decision, the government said these trusts, regulated by Sebi, would be able to access foreign investments which as of now are prohibited under FEMA regulations.
"The intent of introducing the instrumentality of REITs is to reduce pressure on the banking system to which the real estate sector looks for funds, free up existing funds of Banks and to encourage construction activities," it said.
REITs while attracting long-term finance from foreign and domestic sources including NRIs would make available fresh equity to the sector.
Many real estate firms, including realty giant DLF and Bengaluru-based Embassy group, is looking to launch REITs to monetise their completed commercial assets.
In his 2014-15 Budget speech, Finance Minister Arun Jaitley had proposed introduction of REITs, which have been successfully used as an instrument to earn income and distributing earnings from its investments to investors, who have contributed to the pooled corpus.
