It has been a year-and-a-half since the Finance Ministry notified listing of Real Estate Investment Trusts (REITs) in India, but no company has yet floated a REIT as the dividend distribution tax (DDT), among other issues, continues to remain a bottleneck.

Shobhit Agarwal, MD, Capital Markets & International Director, JLL India, said, “Developers and asset holders are waiting for the government to do away with the DDT regulation in the upcoming Budget.”

A REIT is a corporation or trust that uses the pooled capital of many investors to purchase and manage income property (equity REIT) and/or mortgage loans (mortgage REIT). REITs are traded on major exchanges just like stocks.

Though the lack of clarity on tax issues was largely clarified in the last Budget, certain minor tax issues at multiple levels are yet to be resolved, Hemant Tikoo, Chairman, Experion Developers, said.

Clarity on foreign investment DLF, which was one of the first companies to announce plans for a REIT listing, is awaiting clarity on foreign investments as well. Rajeev Talwar, CEO, DLF, told BusinessLine, “Special purpose vehicle structures should come at par with equity MFs. More clarity on DDT and thereafter withholding tax should be brought to a reasonable level so as to make it attractive for industry players to launch REITs.” DLF expects REITs to kick off over the next few quarters.

Apart from DDT, there are also issues such as lack of confidence among players around the commercial acceptability of this product in the market.

Siddharth Shah, Partner, Khaitan & Co, said, “As against global standards, the average rental yield on commercial real estate in India competes with the yields on bank deposits and other fixed income instruments. India still operates under the relatively high interest rate regime as compared to many other markets where REITs have been successful. Therefore, a REIT may have limited commercial appeal to the investors.”

Help via interest rates Shah, however, adds that with softening interest rates combined with the ability to leverage at the REIT level through low-cost overseas borrowing, there could be a point at which the absolute yield from a REIT may start looking attractive as compared to other fixed income instruments.

Historically, even in countries such as the US and Singapore, it has taken significant time for REITs to pick up. Samantak Das, Head — Research, Knight Frank India, says, “In India, we expect a few listings in 2016. In the short- to mid-term, the expected volume could be anywhere between $10 billion and $12 billion.”

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