A rising India is inter alia characterised by a robust real estate sector, which is witnessing a deluge of investment in land acquisition, development and construction. The spiralling growth of manufacturing, services, retail and hospitality sectors, together with rising levels of disposable income, has fuelled the demand for various classes of real estate.
Currently, the participation of small and medium investors is restricted to the residential sector, through direct purchase of property. Higher returns from fixed income yielding commercial property are beyond their reach. This limitation of participants in the commercial sector, and the over-use of debt funding in the past with limited access to the same today, has made the industry turn to Real Estate Investment Trusts (REITs) as the next big thing.
REITs, common in several developed countries, are generally open or close-ended companies /trusts that hold, manage, lease, develop and/or maintain properties for investment purposes. They are often, but not necessarily, traded on an exchange. The value of units/stock allotted to investors is computed on a NAV (Net Asset Value) basis, as the market value of assets minus liabilities. REIT invests in real estate directly, through properties or mortgages, or indirectly through subsidiaries.
In India, a fledgling attempt at introducing REITs in the form of Real Estate Mutual Funds (REMFs) has been made, with draft Securities & Exchange Board of India (Sebi) regulations on the anvil, albeit not in the public domain. These regulations are being closely scrutinised by the Association of Mutual Funds in India (AMFI), Sebi and Institute of Chartered Accountants of India (ICAI). Valuation norms and periodicity of NAV revision are likely to be difficult problems to resolve.
Source: The Economic Times.
The author - Gaurav Taneja, is national director of tax and partner, Ernst & Young India.
0 comments:
Post a Comment