Tax structures for the Real Estate Investment Trusts (REITs) need to be further rationalised to make it more attractive to investors, particularly foreign, according to property consultant CBRE study.
In Budget 2015-16, Finance Minister Arun Jaitley had rationalised capital gain tax regime for the sponsors of newly-created business structure REITs.
The rental income arising from real estate assets directly held by the REIT was also proposed to be allowed to pass through and to be taxed in the hands of the REIT unit holders.
"Despite the greater clarity provided by the budget announcement, much still needs to be done to finalise REITS' tax structures and make them attractive to investors, particularly foreign groups," CBRE Research said.
The consultant said that the announcements fell short of industry expectations that REITs' and their sponsors would be granted complete exemption from taxation.
"A tax will still be levied on REITs' distribution of dividends to investors and there will be no exemption of stamp duty for sponsors which directly transfer assets to a REIT, a measure seen to be supporting the expansion of REITs in Singapore," it added.
In September 2014, market regulator SEBI had notified norms for listing of REITs that would help attract more funds in a transparent manner into the real estate sector. REITs, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into real estate.
CBRE Research noted that the pricing and quality of assets would be crucial for successful launch of the REIT market in India.
"Other challenges, India-REITs must overcome lengthy registration processes and burdensome stamp duties; risks concerning asset selection; a bleak outlook for rental growth in most Indian office markets; and low yields comparative to other investment vehicles such as government securities and AAA bonds, with yields now at a range of 9 per cent," it said.
In the last year's budget presented in July, the Finance Minister had provided partial pass through to encourage REITs, but real estate developers and real estate consultants sought more tax clarity.
