The early trends of performance of REITs/InvITs in India are encouraging with the combined market-cap of the three listed REITs in India currently at over US$7 billion and over US$10 billion for InvITs.
NEW DELHI: Real estate investment trusts (REITs) and Infrastructure investment trusts (InvITs) can be used to attract private investments in the infrastructure and real estate sectors by mitigating challenges such as funding requirement, more long term capital, optimal leverage, limited exit options and corporate governance issues, according to a recent report by Ernst & Young.
REITs and InvITs have raised capital of over US$9.7 billion in India till date. These trusts have the potential to raise up significant amounts of capital for the future of India’s infrastructure buildout. Both the fundraising avenues are gaining traction in India as has been the experience in other developed economies.
With favorable government policies and a long-term investment outlook, many marquee investors including sovereign and pension funds are continuing to invest in such vehicles.
Investors are benefiting from receiving regular cash distributions, stable yield and provides the opportunity for sponsors to expand their asset base, states the report.
The early trends of performance of REITs/InvITs in India are encouraging with the combined market-cap of the three listed REITs in India currently at over US$7 billion and over US$10 billion for InvITs.
According to the report, InvITs are expected to play a key role in the monetization of existing projects in some sectors namely roads and highways, conventional power, renewable energy, airports, railways, digital infrastructure, etc. This is against a backdrop of conducive regulatory frameworks and cash flow profiles with taxation advantages for such vehicles.
For REITs, despite the near to medium term headwinds from covid-19, the long-term drivers for real estate demand are strong and likely to withstand adversities in the sector.
Gaurav Karnik, partner and national leader (Real Estate), EY India said, “InvITS and REITs will play a significant role in funding the government’s infrastructure plans as well assist in meeting its asset monetization plans and at the same time enable deleveraging existing balance sheets which would in turn help meet the capitalization requirements of banks.”
REITs and InvITs are pass through vehicles under Income tax and hence distributions made by the investment trusts are taxed directly in the hands of investors depending on the nature of such distributions i.e. dividend, interest or capital repayment. There is a beneficial tax regime for dividends received from REITs/ InvITs subject to certain conditions.
Sandip Khetan, partner and national leader, (Financial Accounting Advisory Services), EY India said, “Accounting for REIT/InvITs can be complex with multiple legal entities being involved and the interplay of various regulations. Having the relevant structure in place early and evaluating the relevant tax, accounting and other implications would allow sponsor(s) to make the most of this increasingly popular route to funding.”
REITs/InvITs are primarily governed by the SEBI Infrastructure Investment Trusts Regulations, 2014 and SEBI Real Estate Investment Trusts Regulations, 2014 and various circulars issued under these regulations.
While InvITs can be public listed, private listed or private unlisted, REITs are required to be publicly listed. Under SEBI regulations, three years of audited combined financial information under Ind AS need to be presented.
https://realty.economictimes.indiatimes.com/news/industry/capital-investment-in-reits-invits-will-fuel-multi-sector-economic-growth-report/84760576
