Budget clears DDT hurdle in making REITs a reality in India
MUMBAI: With the removal of Dividend Distribution Tax, Real Estate Investment Trusts (REITs) are likely to become a reality in India soon. The move is expected to offer commercial developers a liquidity option and retail investors an opportunity to participate in office realty market’s growth.
“The Dividend Distribution Tax (DDT) got exempted, clearing a final hurdle on the way of the successful listing of REITs in India. We expect a few listings to happen in the current year itself, either by financial institutions or developers,” said Anuj Puri, Chairman & Country Head, JLL India. “Currently, around 229 million sq ft of office space in India can be seen as REIT-compliant and assuming even 50% of these get listed, we are looking at a total REITs listing worth $ 18.5 billion.”
Although introduction of REITs has been under discussion for several years, no REITs have yet been formed given the lack clarity on taxation. The dividend distribution tax (DDT) was until now chargeable at 15% for REITs.
However, according to few experts, there are a certain issues that need to be addressed to see any rush for listing of REITs.
“It’s a big call the government has taken and is a right step in the direction of making REITs a reality in India. However, two other critical issues need both state and central government’s attention to push this agenda further. Exemption from capital gains tax and state government’s stamp duty while transferring assets to REIT’s holding company would be key to REITs success,” said Sanjay Dutt, MD – India, Cushman & Wakefield.
Exemption from stamp duties has helped support the expansion of REITs in other financial markets including Singapore.
Till now DDT was applicable on special purpose vehicles and was a huge hindrance in the introduction of REITs investments, essentially making them less attractive. The removal of DDT is likely to please the institutional investors who view India as an untapped market for this asset.
“It removes a major road block- making these investments attractive for investors. However this decision needs to be viewed from a long term perspective and after evaluating all other aspects of the REIT structure,” said Jitu Virwani, Chairman and Managing Director, Embassy Group.
The move is also expected to bring in the much-needed foreign funds inflow into Indian financial markets. Developers are also hoping the move will help developers unlock the value of their assets by listing their income-earning commercial portfolio.
“Removal of DDT for REITs and infrastructure investment trusts will facilitate investments in the sector and will surely promote many players to opt for REITs as a tool to raise money and bringing in liquidity in the market,” said Rajeev Talwar, chief executive officer of DLF.