$20 Billion Property Trusts in India halted by Tax Rules
The Indian government has announced rules for setting up real estate investment trusts, vehicles that may spur $20 billion of property development. None of the money will be spent unless the country’s tax code is revised.
“REITs cannot take off in India until changes are made in the tax regime,” Anshuman Magazine, chairman of CBRE South AsiaPvt., said in a telephone interview from New Delhi. “Until these issues are resolved, there isn’t much incentive for developers to take the trust route.”
The Securities and Exchange Board of India, the country’s market regulator, released rules for establishing REITs Sept. 26, giving investors the ability to participate in the country’s property market without investing directly.
The tax bill for starting a REIT would be higher than for raising money through an initial share sale, Bhairav Dalal, associate director for tax and regulatory practice at PricewaterhouseCoopers in Mumbai, said in an e-mail. “Until a finance bill is passed to change certain rules, the tax cost might impact the returns offered to investors.”
Changes to the tax regulations aren’t likely to be announced before the presentation of the next Indian government budget in February, CBRE’s Magazine said.
The property trusts pool investor money to buy real estate such as shopping malls, office buildings and rental housing. REIT-funded assets may reach $20 billion by 2020, according to an estimate from property-broker Cushman & Wakefield, of which as much as $12 billion could be raised in the first three to five years.
Foreign institutional investors such as Blackstone Group LP and Brookfield Asset Management Inc. (BAM), have been accumulating Indian rental assets in part with the aim of one day creating REITs, according to a July 10 report from HDFC Securities. Blackstone is the largest private-equity landlord of office assets in India, with about 22 million square feet. Brookfield has about 15 million square feet across the country.
“REITs are a game changer that can bring about more liquidity and transparency into the Indian realty market,” Magazine said. “Domestic and foreign stakeholders have been preparing for this instrument. The question is how long will government take to make amendments to make this product a reality.”
Source: bloomberg- $20 Billion Property Trusts in India Delayed by Tax Rules
