REITS to come up in 12-14 months: Knight Frank

Mumbai: The real estate investment trusts (REITs) are likely to kick off in the next 12-14 months helped largely by liberalised regulatory norms and demonetisation, leading property consultant Knight Frank on Friday said.

As per Knight Frank, the domestic environment is ripe for listing of REITs, an investment vehicle that invests in rent-yielding completed real estate projects.

While, capital market regulator Sebi had notified REIT regulations 2014, no single trust has been set up so far as investors were seeking further easing of the norms as well as various tax breaks, to make these instruments more attractive.

The government has brought amendments in the IT Act to provide a tax efficient and stable regime for REITs in India, while Sebi had also eased up REITs norms in December, 2016.

"Amidst the conducive environment of liberalised REIT regulations, clear guidelines on disclosures and governance of REIT, the demonetisation decision of the Government of India has only accentuated the cause of REIT," Knight Frank chief economist and national director Samantak Das told reporters here.

Das noted that demonetisation of high value currency notes has pushed up the liquidity in the banks which has further led to a considerable fall in government bond yields.

"From the REIT perspective, the decline in government bond yields and the overall interest rate regime has increased the spread with prime office properties," Das said.

"This has also led to the compression of capitalisation rate for prime office assets that are perfect candidates for REITs and this compression has led to the upward revaluation of office property in prime markets like BKC in Mumbai, making REIT listing more attractive," he added expressing optimism that REITs would come up in 12-14 months.

According to a report on REITs released here by Knight Frank while majority of issues restricting launch of REITS have been addressed through changes in the tax and regulatory regime, there still exist some key demands on the taxation.

Among others, these include exemption from dividend distribution tax paid by special purpose vehicles (SPV) to holding company and holding company to REIT and similarly exemption from withholding tax on interest the paid.

"The government also ought to consider waiving the stamp duty where a REIT holds property over a specified period of years or alternatively the state governments could consider a one-time waiver of stamp duty on transfer of assets to REITs," the report said.

"If the sponsor seeks to consider an alternative route (other than SPV model) to hold the REIT assets, this may not be feasible for REITs in India due to high state stamp duties and registration costs applicable in various states on acquisition of properties," it added.

Going by the report, REIT as an investment vehicle has a huge opportunity in India as the country has a rent yielding office inventory to the tune of 537 million square feet valued in excess of USD 70 billion.

Besides, there are other properties like warehousing, retail malls, shopping centers, school buildings which hold huge potential REITs, the report said.