You can soon own some office space even with a small sum just like the owning a share gives you a small bite of the company.
Finance Minister Arun Jaitley in his first budget paved the way for the stock market listing of real estate investment trusts (REITs) in a move to boost foreign investment in the property sector that has been hit by slowing economic growth.
A real estate investment trust is an entity listed on stocks markets that owns rental-yielding real estate assets such as leased office and shopping malls. REITs distribute most of their income to shareholders as dividends.
"REITs allow retail investors to participate in rental income from real estate assets and capital appreciation in the shares of the entity," said Irfan Razack, Chairman & Managing Director of Prestige Group.
Finance Minister Arun Jaitley in his first budget said, "I intend to provide necessary incentives for REITs which will have pass through for the purpose of taxation." A pass-through entity does not have to pay corporate tax. The regulations for listing of REITs are likely come up once the government clears the tax measures proposed in the Budget.
Analysts and real estate developers in particular are awaiting clarifications from the government related to its taxation aspect. "A lot of more things have to be ironed out before REITs are implemented. But the most important aspect is the government's intent to see that the REITs become a reality," says Mr Razack.
Specifying the clarifications needed from the government, Mr Razack said "capital gains tax on transfer of the rental yielding assets to the new entity and stamp duty on the transaction" are some of the important aspects.
The listing of REITs will give property developers a new avenue to raise funds by allowing them to sell finished commercial buildings to investors and list them as a trust. "REITs unlock a lot of value and give more cash to create more rental yielding assets, instead of depending on debt."
Industry experts have said that REITs have the potential to bring in funds about Rs 60,000 crore by the end of this fiscal. (With Agency Inputs)
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