 "Budget to kickstart REITs in the country; to boost budget housing")
The doing away of dividend distribution tax (DDT) on the distribution made out of income of special purpose vehicle (SPV) to the REITs and INVITs in the Union Budget could pave way for the launch of real estate investment trusts (REITs) in the country, finally.
“I think this was the final roadblock for the REITs and now REITs will be a reality in the country,” said Anuj Puri, chairman, JLL India, a real estate consultant.
According to realty consultancy JLL, 80-100 million sq ft of office space in the country worth at least Rs 1,00,000 crore may qualify to be included under REITs. These assets could together generate rentals of Rs 6,000 crore annually.
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Many investors and developers such as Blackstone-Embassy, Ascendas, RMZ, DLF, K Raheja Corp, and others were looking at launching at REITs, but did not pursue it due to take leakages at various levels earlier.
REITs are similar to mutual funds, and can be listed and traded on stock exchanges. These have to distribute a majority of their income as dividend.
In April last year, the Union Government said minimum alternate tax (MAT) would not be applicable on notional book gains, arising from exchange of shares in SPV(special purpose vehicles) with unit of trusts in infrastructure and real estate (REITs/INVITs), thus fulfilling a long pending demand of developers. In the last budget, the government announced capital gains tax exemption at the hands of the sponsor and other fiscal incentives to investors.
“With DDT going out, India will be more attractive option for REITs. We will pursue REITs more actively now,” said Thirumal Govindraj, managing director at RMZ Corp, one of the largest office space owners in the country.
“There will be huge inflow from foreign funds for REITs. It will benefit foreign investors more than developers as they do not have debt and only investments,” added Rajeev Talwar, executive director at DLF.
Budget housing
The government’s support to affordable housing is expected to spur such projects in tier II cities and peripheries of big cities.
The Finance Minister announced 100% deduction for profits to an undertaking in housing project for flats up to 30 square metres (322 sq ft) in four metro cities and 60 sq. metres (645 sq ft) in other cities, approved during June 2016 to March 2019 and completed in three years.
He also announced a deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs 50 lakh.
“It will give a huge boost to satellite towns and development of peripheral areas in metros,” said Talwar of DLF, adding: “all developers will actively look at it now.”
He said all developers need to keep 20% of the project as affordable housing component.
Added Sunil Rohokale, managing director of ASK group: “The 100% deduction announcement will make developers to look at affordable housing seriously now.”
