The Securities and Exchange Board of India
("SEBI") on September 26, 2014,
announced guidelines for the creation of real estate investment
trusts ("REITs") in India by issuance of
the SEBI (Real Estate Investment Trust) Regulations, 2014
("REIT Regulations"). Right from the
date of issuance of the REIT Regulations, the REIT as an investment
structure is being keenly viewed by the market as the next big
evolutionary step in the growth story of the Indian real estate
These quasi debt-equity instruments are structured to operate in
a manner similar to mutual funds by pooling in money from investors
and investing these funds in to rent generating assets, thereby
offering REIT investors a chance to diversify their asset portfolio
to real estate, without having to shell out the big bucks to
actually purchase property, in an already expensive property
However, in the past financial year, the actual implementation
of the REIT has proven to be an uphill task due to funding
challenges, faced by the cash strapped real estate sector, and the
ambiguity persisting in relation to the incidence of taxation of
The Government took its first step towards resolving these
issues by announcing its approval to REITs being considered as an
eligible financial structure for foreign investment (necessary
amendments to FEMA 20 were introduced in November, 2015 to grant
legal validity to REITs as an investment vehicle for foreign
investments). This amendment was complemented by much needed tax
exemptions granted to REITs, in the Union Budget, 2016, which
removed dividend distribution tax on income earned by the special
purpose vehicle holding the REIT assets.
The abovementioned amendments to the legal and regulatory regime
governing REITs in India were accompanied by the Government
diluting its stand on 'real estate business' and permitting
FDI in rent generating assets. At this juncture it is important to
note that the size of rental assets in India is significant, and
this move by the Government, when coupled with recent tax
exemption, might prove to be a major contributing factor in making
the establishment of REITs in India less onerous.
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On March 10, 2015, the controversial amendments to the land acquisition law were finally passed by the Lok Sabha after facing severe criticism both from the opposition parties as well as from the government's own allies.
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