NaMo’s India REIT in #Budget 2014 to Benefit DLF & Congress the Most

July 13, 2014 · Author: · Category: general 

After being repeatedly ignored in budget speeches in earlier years, the real estate sector benefited from many positive measures during the first budget of the new Government with tax concessions for REITs, easing of FDI norms and a boost to affordable housing.

Tax Concessions – The act of setting up a REIT requires a sponsor to contribute assets (either directly to the REIT or shares of an SPV that owns immovable property into the REIT). Any such contribution, under the erstwhile law, would have meant a capital gains tax incidence of at least 20% on the difference between the holding cost and the transacted fair market value at the time of the sponsor’s contribution to the REIT. The budget proposal now recommends that the contribution of assets or contribution of SPV shares into the REIT will be exempt from capital gains tax.

FDI norms for real estate relaxed: The budget proposes relaxation of FDI norms around minimum development area and minimum capitalization. The minimum development area requirement has been relaxed from 50,000sqm (about 538,000sft) to 20,000sqm (about 215,000sft) whilst the minimum capitalization requirement has been relaxed from US$10mn to US$5mn.

Crucially, REITs would reduce the pressure on the banking system and make fresh capital (equity as well as debt) available to developers with a portfolio of yield bearing assets. The investment vehicle will attract long-term finance from foreign (pension funds, sovereign funds), domestic institutions as well as a savvy nonresident Indian (NRI) investor community and the Political Class of MLAs & MPs who can divert funds into the country in disguise as Foreign Funds.

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