REITs in India

REITs (Real Estate Investment Trusts) in India

What is REIT…

 Entity which pools in money and invests in real estate
 Provide a similar structure for investment in real estate
as mutual funds provide for investment in stocks
 Can be publicly or privately held
 Generally listed on exchange
 Assets of the trust are managed by a Fund Manager
 Provide taxation benefit to investors
 Pass through available in some countries like USA if
specified conditions are met

Why REITs …..

 Provide alternate investment class to investors
 High liquidity
 Tax advantage of pass through status
 Low transaction cost
 Lower ticket size
 Capital access and exit route to developers
 Institutionalization of RE sector
 Attracts foreign investors
 Help develop a broader economy

The India Opportunity…

 Robust economy growth is driving force
 Avg GDP during last three year ~ 8%
 Return offered by Real estate sector in India is
almost double that of USA real estate sector
 Greater diversification opportunities exist
 Shortage of quality existing space will fuel
demand for future constructions
 Regulatory reforms are under way
 Foreign inflows have been rising
 Demand for residential, commercial and retails
space is growing

Key demand drivers…

 Residential space
 Increased population and urbanization
 High Income level and access to financing
 Commercial Space
 Service sector is growing
 IT/ ITES are at peak
 Retail/ Hotels
 High Disposable income and standard of living
 Entry of global brands
 Increased business travel/ tourism

Demand is great … issues do exist!!

 India offer greater opportunity than any other country
but hurdles remain;
 Tenancy Law/ ULC Act / Other Laws
 Shortage of quality assets
 High Cost of transaction (stamp duty is as high as 15%)
 Unclear and non corporatised ownership
 Restricted retail investor participation
 Lack of transparency & Illiquid Market
 Unfavorable tax rules (no pass through)
 No standard valuation policies
 FDI restrictions (Press note 2, capitalization etc)

Favorable steps so far…

 Allowing Venture Funds to invest in real estate
 Permitting Real Estate Mutual Funds
 Relaxation in FDI norms by introducing press note 2

Some Suggestions

 Clarity & relaxation on FDI norms
 Implementation of LLP or similar structure for tax pass
through
 Lower stamp duty costs & case based exemptions
 Greater transparency & accountability among
developers
 Standard valuation norms
 Quality constructions

Conclusion

REITs are not only inevitable but also necessary