Having cleared a long-pending industry demand for creation of Real Estate Investment Trusts (REITs), regulator Sebi today said that the new norms would help entities with at least Rs 2 lakh investment to earn from completed real estate projects.
The new norms for REITs, as also for Infrastructure Investment Trusts (InvITs), were cleared by Sebi's board today, while final notifications would be issued soon to make the norms effective in a month or two.
"The idea is that even if somebody can invest as low as Rs 2 lakh, such a person can get the benefit of the income from the completed projects," Sebi Chairman U K Sinha said.
The REIT guidelines would allow creation and listing of such trusts and their units can be traded on the stock exchange like equity shares.
"Primarily REIT is with regard to completed projects, revenue generating projects," Sinha said.
"As you may be aware that the government in the Finance Bill has already provided for tax treatment for REITs and InvITs. So with those tax treatments in place and Sebi regulations in place we can hope that there will be some progress in the real estate market and in the infrastructure market," he added.
Explaining the modalities, the Sebi chief said that if "somebody creates a Special Project Vehicle (SPV) and has made an investment in an real estate project, units of that will be used to form the REIT and that Trust will issue shares".
"On tax pass through, we have realised that when the SPV is transferred to the REIT, at that stage there will be a tax deferral. That means at that stage, tax will not have to be paid. When the investor in that original project SPV finally disposes of his property at that stage he will be paying the tax. All that is provided in the Finance Act.
"Fortunately the good thing is that tax treatment has already preceded our regulation drafting today ... We had decided we will wait for tax treatment to be cleared and the tax treatment what was finally cleared in this Budget and now finally we have come with our regulations," Sinha said.
When asked if the new norms can come into effect by October, the Sebi Chairman said, "We will take about may be a month or two months. So October 1 is a reasonable time period (for notification)."