Real Estate Investment Trust (REITs)

The Finance Minister recently announced in the Union Budget that Real Estate Investment Trusts would be eligible for a tax
pass through status. This is an important announcement and paves the way for introduction of REITs in India. Through this
Knowledge Byte we would like to provide you an update on this alternative investment instrument.

For your information, the REITs are not yet launched in the Indian market. The draft REITs regulations were available for
public comments until October 31, 2013 and SEBI is expected to formally introduce the regulations in October 2014.
REITs
REITs are the entities that invests in revenue generating real estate assets and sells their units
like a stock on the major stock exchanges.
Registration REITs are required to register with SEBI (Securities Exchange Board of India)
Stakeholders Trustee, Sponsor, Manager and Principal Valuer and Individual Investors
Listing
Requirements

Listing
Offer of units to public
Minimum asset holding
Minimum IPO size
Minimum public float
Minimum subscription
: All the units of REIT should be listed on a stock Exchange
: Initial Public Offer (IPO) or a Follow-on Offer
: REITs should have Real estate assets worth INR 1,000 crore
: INR 250 crore
: 25% of the value of the REIT
: INR 200,000 and unit size INR 100,000
Investment
Conditions and
Income
Distribution

REITs are allowed to invest in properties directly or through a Special Purpose Vehicle
(SPV)
90% of the value of a REIT shall be invested in completed and revenue generating
assets and remaining 10% may be invested in developmental properties and other
assets
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REITs cannot invest in vacant land or agriculture land or mortgages other than mortgage
based securities REITs can invest 100% of its corpus in one projects subject to condition
that minimum size of such asset should not be less than INR 1,000 crores
REITs may raise funds from any investors, resident or foreign. However, initially, till the
market develops, it is proposed that the units of the REITs may be offered only to HNIs/
Institutions
REITs are required to distribute minimum 90% of the net distributable income to investors
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Restriction on
REITs for Leasing
Property

Area leased to a related party should not exceed 20% of the underlying area of the assets
Value of assets under such lease should not exceed 20% of value of the total underlying
assets
Rental income obtained from such leased assets should not exceed 20% of the value of total
rental income derived from underlying assets
Valuations,
Transparency and
Disclosures




NAV (Net Asset Value) calculation on a biannual basis
Full valuation required once a year, followed by an update every 6 months
Transaction value of purchase/sale of a property taken as average of valuation given by two
independent appraisers
For valuation purpose International valuation standards and Institute of Chartered
Accountants of India (ICAI) valuation standards will be used
Tax pass through
Status as per
Budget 2014

A 'pass-through' status means that the income generated by trust would be taxed in the hands
of the investor, and that the fund should be considered a pass through entity and exempt under
the income tax. Exempting the REITs from income tax does not necessarily cause the loss of
revenue as these are pass through entities and income distributed by them would be taxed in
the hand of investors. Further, such pass through income would not just include dividends only,
but also capital gains and interest income.
Matters which
needs further
clarifications

Treatment of stamp duty on transfer of real estate assets in to SPV
Tax structure of REITs
Timelines by when an entity can actually form REITs
Notes
Completed properties defined to mean properties which have received occupancy certificates.
Rent generating properties' defined to mean properties with 75% of the area rented / leased out.
Developmental properties means properties that are under construction with no occupancy certificate.
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Other assets include listed / unlisted debt of companies, mortgage backed securities government securities and money
market instruments / cash equivalents amongst others.


Prepared by : Research Team | India

For more information and other research related queries please contact:
Surabhi Arora | Associate Director | Research
Surabhi.arora@colliers.com | Dir +91 124 456 7580

Disclaimer:

This document has been prepared by Colliers International for general information only. Colliers International does not guarantee warrant or
represent that the information contained in this document is correct. Any interested party should undertake their own enquiries as to the
accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of
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Real Estate Investment Trust (REITs)