{"id":307,"date":"2019-05-01T15:01:01","date_gmt":"2019-05-01T15:01:01","guid":{"rendered":"http:\/\/www.yuvapragatee.com\/?p=307"},"modified":"2019-05-01T15:02:26","modified_gmt":"2019-05-01T15:02:26","slug":"reits-a-new-animal-in-the-investing-world","status":"publish","type":"post","link":"https:\/\/www.yuvapragatee.com\/?p=307","title":{"rendered":"REITS: A New animal In the Investing World"},"content":{"rendered":"\n

What is REIT<\/strong><\/p>\n\n\n\n

Real\nEstate Investment Trusts (REITs) are similar to a mutual fund wherein investors\npool funds which are invested by the sponsor of the scheme into the real estate\nasset class which acts as the underlying securities. However, the working of a\nREIT differs a lot. During the launch offer, an investor may buy REIT units\nwhich can then be traded on the stock exchanges and thus ensure liquidity. As\nper the rules, the minimum allotment will be in multiple of one lot each\nconsisting of 100 units and after listing trading will be in multiple of one\nlot. The REIT shall issue units only in dematerialized form to all the\ninvestors.<\/p>\n\n\n\n

The\nminimum subscription amount in REIT has now been reduced from the earlier limit\nof Rs 2 lakh to Rs 50,000. <\/p>\n\n\n\n

India\u2019s first real estate investment\ntrust (REIT) <\/strong><\/p>\n\n\n\n

The\nfirst REIT initial public offering (IPO) by Embassy Office Parks, a\nBangalore-based real estate developer backed by Blackstone Group LP, a global\nprivate equity firm, was open for investment between March 18 and 20, 2019. The\nEmbassy Office Parks REIT raised \u20b94,570 crore through the IPO. The per unit\nprice of the REIT has been kept in the range of \u20b9299-300, with the minimum\napplication bid of 800 units. This means that an investor will have to invest\nat least \u20b92.4 lakh in this product. Thereafter, one can increase the lot size\nin multiples of 400 units. As on 26th April closing price of it was Rs. 327 per\nunit.<\/p>\n\n\n\n

Where it invests<\/strong><\/p>\n\n\n\n

As\nper SEBI guidelines,  REIT shall hold at\nleast two projects, directly or through SPV, with not more than sixty per cent\nof the value of the assets, proportionately on a consolidated basis, in one\nproject. Further not less than 75 per cent of the revenues of the REIT and the\nSPV, other than gains arising from sale of properties, shall be, at all times,\nfrom rental, leasing and letting real estate assets or any other income\nincidental to the leasing of such assets.<\/p>\n\n\n\n

The\ninvestment can be made in under-construction properties, \u2018completed and not\nrent generating\u2019 properties subject to caps and conditions. REIT is also\nallowed to invest in listed or unlisted debt of companies or body corporate in\nreal estate sector, mortgage backed securities, equity shares of listed\ncompanies, money market instruments and government securities amongst others.<\/p>\n\n\n\n

Expected Returns from REITs<\/strong><\/p>\n\n\n\n

As\nper guidelines minimum 90% of net distributable cash flows of the SPV shall be\ndistributed to the REIT. Further, not less than 90% of net distributable cash\nflows of the REIT shall be distributed to the unit holders; and any such\ndistributions shall be declared and made at least once every six months in\nevery financial year.<\/p>\n\n\n\n

As a REIT\ninvestor, the earnings may be in the form of regular income and capital\nappreciation, if any. In Indian scenario, most industry experts expect return\nof about 8-12% percent from the REITs.<\/p>\n\n\n\n

How REITs are\ntaxed<\/strong><\/p>\n\n\n\n

How\nthe income gets taxed in your hands depends on whether your REIT is passing it\noff as a dividend income or rental income.<\/p>\n\n\n\n

Scenario 1:<\/strong>  If\nit\u2019s the rental income that it is passing on- which would mostly be the case\nsince REITs are meant to pass on at least 90% of its rental income, then it\nwill be added to your overall income and get taxed at your income-tax rates. In\nthis case REIT will deduct a tax at 10% (TDS) for resident investors and at\nrates in force (40%, at present) for non-resident investors<\/p>\n\n\n\n

Scenario 2:<\/strong> If the income distribution is in the nature\nof a dividend, then there won\u2019t be any dividend distribution tax or any tax in\nthe hands of unitholders.<\/p>\n\n\n\n

Capital Gain Tax:<\/strong><\/p>\n\n\n\n

If\nyou sell your REIT units on the stock exchange after three years, you will need\nto pay a capital gains tax at 10% (plus applicable surcharge and cess). If you\nsell your REIT units within three years, a short-term capital gains tax of 15%\n(plus applicable surcharge and cess) will be imposed.<\/p>\n\n\n\n

Things to look beyond<\/strong><\/p>\n\n\n\n