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REITs to have long-term benefits for realty sector: JLL

Add comment   |   June 7, 2014    05:11am   |Contributed by Indian Realty News

The Indian government is mulling tax breaks for launching real estate investment trusts (REITs) this Budget. This investment opportunity, Ashutosh Limaye, JLL India, says will reap benefits in the long-term.

Speaking to CNBC-TV18, Limaye says the government should give tax breaks as well as clarity on taxation for REITs to pick up.

“Furthermore, it will lead to many unlisted companies going public. Companies like DLF, Prestige Estates and IndiaBulls that have good office or shopping centre portfolio are likely to be benefited,” he adds.

Below is the verbatim transcript of the interview.

Sonia: As you heard Securities & Exchange Board of India (Sebi) is looking at some tax treatments for real estate investment trust (REITs) and that is one of the key bone of contention for many investors. Only if tax breaks are given then REITs will look attractive, what is your sense?

A: Not only tax benefits but clarity on taxation is even more important. Everywhere in the world where REITs are successful, they are successful because only the end investor or the unit holder is taxed at his end. There is no taxation anywhere in between in different levels. So, should REITs work well in India? I think we need to follow a flow down kind of taxation. Also, because REITs are introduced for the first time in India, they need some incentives, tax breaks and it could be one time or for a stipulated period.

Senthil: So we need clarity on tax treatment and a tax beak?

A: I think both together will give that initial impetus momentum for REITs to pick up. They act more like trust as the name implies. They have a stringent guideline to follow and they cannot deviate from those guidelines otherwise they will be taxed pretty heavily like a corporate tax. So, this tax break is needed to give the initial push. Once the industry matures then one can think of removing or reducing the tax incentives.

Senthil: What kind of investor is aimed at? Who is the investor that REITs typically looks at?

A: Typically it is the small or retail investors who want to invest in real estate but because investing in properties means high entry barrier, so, today\’s guidelines say that it is Rs 2 lakh.

Senthil: Isn’t that too high or would you want that also to be reduced or Rs 2 lakh you think is okay?

A: To start with it is fine; eventually it will be reduced on that front as well. So, it is the retail investors who can now participate in real estate and can diversify their investment portfolio.

Senthil: You don’t think there is a need to drop the minimum investment?

A: Not really, to begin with it is fine.

Sonia: Which are the developers that could benefit from REITs coming through?

A: I think it is the developers who have a significant office portfolio or a shopping center portfolio which is income yielding. Foe example DLF, Prestige Estate and certain other developers like Indiabulls Real Estate who don’t have that much of portfolio but still they have income yielding assets. I think more developers can consider listing themselves once the REITs are allowed. So, it can open up a lot of more space into the listed companies\’ universe. Presently we have a very small fraction of real estate companies which are listed with REITs we can expect that to improve.

Source: MoneyControl.Com

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