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Sebi pitches for tax sops to woo investors to REITs

Sebi pitches for tax sops to woo investors to REITs

In its draft regulations relating to REITs, Sebi has broadly applied a framework similar to that of an initial public offer, requiring listing of units issued by REITs.

The Securities and Exchange Board of India (Sebi) has pitched for tax incentives to woo investors into the proposed real estate investment trusts (REITs), which, it is felt, will go a long way in helping the cash-strapped companies raise funds.

About five years after issuing the first draft regulations for REITs, the capital markets regulator on October 10 moved a step closer and issued draft guidelines to allow REITs.

The trusts are expected to pep up the cash-strapped realty sector with capital infusion.

"For REITs to be successful, they have to be tax efficient. We will ask the tax authorities to consider some incentives for REITs," Sebi Chairman Upendra Kumar Sinha said on the sidelines of a conference in Mumbai on protecting capital market investors. "We will talk to the I-T department to make it happen," he added, but did not offer details.

In its draft regulations relating to REITs, Sebi has broadly applied a framework similar to that of an initial public offer (IPOs), requiring listing of units issued by REITs.

The regulator has also prescribed various norms, including those related to minimum offer size, public float, and size of assets. The trusts are proposed to be allowed to list on exchanges through IPOs and through follow-on offers and raise funds.

"REIT shall be set up as a trust under the provisions of the Indian Trusts Act of 1882," Sebi had said, adding, however, they are not allowed to launch any schemes. According to the draft rules, only such entities would be allowed that have at least 90 per cent investment in completed revenue generating projects.

The move is aimed at providing investment avenues for investors by way of trading units of REITs, similar to mutual fund and exchange traded fund structures for stocks, bonds and other securities.

The regulator said that REIT may raise funds from any investors, resident or foreign though initially, till the market develops, it is proposed that the units of REITs may be offered only to HNIs /institutions.

The draft norms comes as the real state sector witnessed rapid growth in recent years underlined by robust economic growth in the country.

Globally, framework for REIT exists in several countries, including the US, Britain, Australia, Singapore, Japan and France.

In line with the nature of the REIT to invest primarily in completed revenue generating properties, "it has been mandated that at least 90 per cent of the value of the REIT assets shall be in completed revenue generating properties."