REIT

A REIT is an investment vehicle for rent-yielding properties. The key requirements are investment of a certain minimum corpus in operational rental assets, of which certain portion has to be rent generating. While most REITs globally do not pay corporate taxes, they must necessarily distribute most of their net income as dividends to investors. To the real estate developers, REIT provides additional source of fund raising while ensuring that they maintain control of properties. Further, it helps developers split assets according to its risk characteristic and offer products to investors with differing risk appetite in turn increasing the overall value proposition. In Union Budget FY2015, government has declared that REITs and Infrastructure Investment Trusts (InvestIT) to have a pass-through for the purpose of taxation.

SEBI had floated draft regulations for discussion on October 10, 2013 and invited public comments on the same to be submitted latest by October 2013

Key proposals in the draft regulations in India

Size, structure and listing norms

1. Minimum asset size of Rs. 10 bn                                                                                                       

2.      Minimum initial offer size of INR 2.5bn and minimum public float of 25%

3.      Minimum investment – INR0.2mn and minimum unit size – INR0.1mn

Open to foreign investors Investment conditions

1. Must invest at least 90% of the value of its assets in completed revenue generating properties (defined as property having minimum 75% of its area leased out) and Balance 10% of REIT assets can be invested in

o   Development properties which shall be held by the REIT for not less than three

years after completion and shall be leased out

o   Listed or unlisted debt of companies

o   Mortgage backed securities

o   Shares of public listed companies which derive at least 75% of their revenues from

real estate activity

o   The government securities or money market instruments or cash equivalents

c   2. REIT can invest up to 100% of its corpus in one project provided minimum size of such a project is INR10bn                                                                                                                                               3. Must distribute at least 90% of the net distributable income after tax as dividends annually

   4. Not allowed to invest in vacant land or agricultural land or mortgages other than mortgage backed securities 

5. REIT must not invest in units of other REITs