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The Indian Association of REITs, is in talks with the Securities and Exchange Board of India, making a case that Real Estate Investment Trusts (REITs) be classified as equities.
Just like mutual funds allow investors to own a fraction of the company; REITs or real estate investment trusts allow investors to own a fraction of the real estate without purchasing or managing the property. REIT is a company that owns or finances income-producing real estate properties where they pool money from the investors and invest it in real estate projects like workspaces, malls, and others.
If REITs are classified as equities, it would allow for index inclusion wherein a lot of passive flows would come into REITs. The equities as a product increases the liquidity, which could lead to more trading.
While Indian indices have not included REITs, globally SP Global and FTSE have already included Indian REITs in their component. If REITs get classified as equities, the regulations could be in line with equities for capital gain tax, which could be a positive factor for investors.
In equities if the holding period is less than 365 days, indicating a short-term investment, a tax rate of 15 percent is applied. If the holding period exceeds 365 days, which is a long-term investment, the profit from the sale of equity shares exceeds Rs 1 lakh, a tax rate of 10 percent is levied on profit. While in REITs, on sale of listed units where units are held for less than 36 months, a short-term capital gain tax (STCG) at 15 percent is levied.
As per SEBI chairperson Madhabi Puri, the market for REITs, InvITs, and municipal bonds could grow as big as India’s GDP in the coming years. She also said that investors should be made aware of the safety and presence of such asset classes.
REITs are currently less than 10 percent of the total market capitalization of Indian real estate, and hence there is a huge scope for REITs to grow further, said Sundareswaran, MD of Morgan Stanley.
India currently has only four listed REITs, three catering to office space and one catering to retail space. “REITs can move to various sectors like hotels, data centres, residential, multi-assets, and others in future and the sector can grow,” said Agarwal.
The Indian REITs Association is a non-profit trade organization formed under the guidance of SEBI and the Ministry of Finance, and is committed to advancing the growth and development of the REITs in India.
