Taxation, Regulatory Issues May Trip REITs Success: Report
Mumbai: Real Estate Investment Trusts (REITs) could be a game changer for the realty sector, but lack of clarity on taxation and regulatory aspects might act as roadblocks for attracting foreign investments in the commercial space, according to a report.
REITs are expected to channelise funds from moderate investors such as insurance and pension funds, but several taxation and regulatory issues could act as impediments, said the report titled 'Destination India - Are we ready for REITs?' released in Mumbai on Friday by global accounting firm KPMG jointly with Indian Private Equity and Venture Capital Association (KPMG-IVCA).
The KPMG-IVCA report has estimated that India has about 350 million square feet of 'Grade A' office space, which is valued at about $65 billion to $70 billion (Rs 4.2 lakh crore at 1 dollar = 60 rupees). Of which, about 100 million square feet is estimated to be eligible for REITs in the next three years, valued at about $20 billion (Rs 1.2 lakh crore).
As much as 52.6 million square feet and 57.1 million square feet are likely to be developed in 2015 and 2016, respectively.
Most of India's 'Grade A' property is concentrated in seven major cities namely Delhi-NCR, which includes Gurgaon and Noida, in addition to Mumbai, Bengaluru, Chennai, Pune, Kolkata and Hyderabad.
Besides 'Grade A' office space, there are other commercial properties which might come under the purview of REIT-able properties including shopping centres, retail malls, hotels, industrial warehouses and other places of storage, the report said.
"The availability of large number of assets across different cities, inexpensive properties (in comparison to global peers), and high growth potential of commercial real estate sector is expected to find takers for REITs in India," KPMG India partner and head of real estate and construction Neeraj Bansal said.
Recent developments such as formation of the new government, improvement in domestic as well as global economic growth and resumption of infrastructure cycle in India are expected to further support the commercial real estate sector, he said.
However, certain taxation and regulatory aspects of REITs require amendments, especially in the Income Tax Act, which could further enhance attractiveness of Indian REITs for global investors, Mr Bansal said.
"It is critical that the government considers further amendments to the Income tax Act to provide a tax efficient and stable regime for REITs in India. It is also essential that government holds detailed discussions with all stakeholders and extends help to make Indian REITs a preferred investment channel for real estate investors," he said.
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