Union Budget 2015: REITs listing set to become easy, with smoother investor exits

 BANGALORE/ MUMBAI: The union budget for 2015-2016 has eased the path for listing of Real Estate Investment Trusts (REITs) in India by allowing pass-through of taxes for rental income and rationalizing capital gains tax for the sponsors of a REIT. 

The move is likely to boost REIT listing in the country, allowing faster and smoother exits to investors. 

 "A large quantum of funds is locked up in various completed projects which need to be released to facilitate new infrastructure projects to take off. I therefore propose to rationalise the capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs, subject to payment of Securities Transaction Tax (STT). The rental income of REITs from their own assets will have pass through facility," Finance Minister Arun Jaitley said while presenting the Budget. 

 "In respect of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs), it is proposed to provide that the sponsor will be given the same treatment on offloading of units at the time of listing as would have been available to him if he had offloaded his shareholding of special purpose vehicle (SPV) at the stage of direct listing. 

Further, the rental income arising from real estate assets directly held by the REIT is also proposed to be allowed to pass through and to be taxed in the hands of the unit holders of the REIT," he said 

Some of the developers that can benefit from the capital gains tax easing on REIT are DLF, Embassy Property Developments, RMZ Corp, K Raheja Corp, and Unitech with commercial offices portfolio in the range of 4 to 24 million sq ft. 

"Promoter-level capital gains tax on migration to REITs has been rationalized, which should kick start the REITs. Although, Minimum Alternate Tax on the migration to discourage promoters to immediately initiate the process. Clarity on tax pass through for domestic Real Estate Funds should act as a catalyst in attracting significant investment," says Bhairav Dalal, associate director, tax & regulatory, PwC India. 

 Prospective REIT candidates praised the move, but also sought further clarity. 

"Budget was growth oriented and the move will help in making REIT a further reality. Hope the fine print of Budget has clarification on the DDT exemption and if the capital gains are available for sale of assets too by the REIT," says Raj Menda, managing director, RMZ Corp. 

The Bangalore-based company is looking to list its office properties in a REIT in 2015 or by early 2016. 

 Listing commercial properties on REITs will allow builders to raise cheaper capital and also give an opportunity for retail investors to participate in India's growing commercial realty market. REIT is a type of security that is sold like a stock on an exchange and invests and owns real estate assets that produce a stable rental income for shareholders. 

 "Capital gain on REIT was inappropriate. Removal of it will make potential for REIT very good and attract foreign capital in income p[producing assets," says Mike Holland, chief executive officer, Embassy Office Parks. The builder has a joint venture with Blackstone Group. 

According to Sanjay Dutt, executive managing director, South Asia at Cushman & Wakefield listing and implementing REITs in India will surely be a game changer for investors and the real estate sector alike with REITs becoming financially viable for market. "The move will help consolidation in the industry and increase transaction," says Dutt. 

"The announcement looks progressive and will pave the way for the REIT listing. We expect first REIT listing in the last quarter of current fiscal. But a lot will depend on the dividend distribution tax and how capital gain tax is treated in the hand of investors," says Rajeev Bairathi, executive director, capital transactions group & north India at Knight Frank India. 

 
http://economictimes.indiatimes.com/articleshow/46410512.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Budget 2015 reflects a noble intent

Bold and refreshing, the Union budget has materially delivered on investor expectations on key tax aspects—bringing a much-needed benign trend for corporate tax to 25% over four years, re-affirmation of the Goods and Services Tax for the coming financial year, and deferral of general anti-avoidance rule. The abolition of the ineffective wealth tax and the final burial of the Direct Taxes Code remove needless regulations. 


The accompanying promises for implementation of the recommendation of the Tax Administrative Reform Commission, cleaning up of the rules for indirect taxation, lowering of the royalty tax withholding rates and clarification on dividend distribution taxes could bring much-needed clarity and certainty in the tax laws. Those which are a subject matter of legislation will typically come into effect as per dates stipulated; others which require subsequent regulation or administrative measures could have a time lag. To illustrate, in the budget presented in the summer of 2014, the finance minister had promised three key changes in the transfer pricing laws, i.e. , roll back of advance pricing agreements, range concept and use of multiple year data; these are yet to be made fully operational.

 Additional benches for advance rulings again promised last year to provide certainty in tax laws were belatedly announced last week and will be functional only once appointments are completed. It can only be hoped that the promises of this season will have a quicker implementation. 

By proactively legislating that there will be no minimum alternate tax on select category of investors, amending the provisions to remove impediments for real estate investment trusts and defining rules for “no permanent establishment” on presence of fund managers, potential dispute and litigation has been avoided and capital flows and investment have been welcomed. 

The fine print, however, is not as promising, as the detailed rules, when read, cause concern, such as the question on whether minimum alternate tax will be pursued by the tax man in all situations other than where it is explicitly exempted by Parliament. Equally, the legalese around enabling provision for presence of fund managers appears quite complex and constraining. 

Looks like the draftsmen do not share the same liberal thinking as the finance minister. The crackdown on illegal holding of assets and income outside India was expected, but the emphasis and aggression of the finance minister on this subject is clearly to address the political constituency that there will be incentives for investors and material adverse consequences for evaders. 


There were also some expectations that were belied around the emerging e-commerce industry which would have hoped for a roadmap for taxation standards. In summary, the budget does reflect a noble intent and an understanding of what the investors need to get capital flows working for investment and job creation. Gokul Chaudhri is leader-direct tax, BMR & Associates LLP.

Read more at: http://www.livemint.com/Money/KwzuTmdpXpIIhNqHVNq4hL/Budget-2015-reflects-a-noble-intent.html?utm_source=copy

More shock than awe for real estate

The Union Budget 2015-16 failed to deliver on the expectations of India’s ailing real estate sector though it contained some positives.

The industry was expecting clarity on smart cities, an increase in the limit of interest deduction on housing loans from Rs 2 lakh to at least Rs 5 lakh to spur home buying, subsidising interest rates, tax holiday on new affordable housing projects and industry status to the sector. “The Budget did not give us much because the wish list was very long,” said Harpreet Singh, partner—risk advisory services, PwC India. “We however did see some positives, like the benami transaction prohibition bill to tackle black money transaction in real estate. This will increase property valuation and bring in transparency into the sector.”

In line with the government’s housing-for-all policy, finance minister Arun Jaitley announced 6 crore housing units (2 crore in rural and 4 crore in urban areas) by 2020 without giving details on how this will be achieved. Jaitley also announced the setting up of an expert committee for legislation on making a pre-existing regulation to expedite approvals. Surabhi Arora, associate director, Research Colliers International, a real estate consultancy firm, says this is a step towards single-window clearance. “Because of delays in approval processes, most of the real estate projects currently face construction delays of up to 3 years. We hope to see a single-window clearance system soon,” said Arora.

Sachin Sandhir, global managing director, emerging business & MD, South Asia, RICS (Royal Institution of Chartered Surveyors) is disappointed that the Budget did not meet the sector’s long-pending demand for an ‘industry status’. “The industry status could have eased the flow of bank loans towards the sector already under a severe cash crunch,” he said.

Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, said the real estate sector is more shocked than awed with the Budget. “The finance minister has missed an opportunity to use real estate sector as a trigger for economic growth,” he said. “We are disappointed with this year’s budget because except for REITs (simplification of REIT’s taxation) and curbing of benami transactions, there was no specific mention to the sector this time around, unlike the last Budget presentation.” 

http://forbesindia.com/article/budget-2015/more-shock-than-awe-for-real-estate/39743/1

Budget 2015 wishlist: Real estate industry

With the Union Budget approaching on February 28, industries have put forth their wishlists. Here is what the real estate industry wants:

- Expediting the enactment of the Real Estate (Regulation and development) Bill 2013 which is likely to help develop consumer confidence in a sector.

- Enhance the limit of interest deduction on housing loans from Rs. 2,00,000 to at least Rs. 5,00,000; increase the limit under section 80(C) from Rs. 1,00,000 to Rs. 3,00,000 to spur house purchases.

- Extend tax holiday under Section 80(IB) to new affordable housing projects, with appropriate safeguards to ensure that benefit is passed on to house buyer.

- Introduction of Technological Upgradation Allowance for IT industry.

http://www.thehindu.com/business/budget-2015-wishlist-real-estate-industry/article6929514.ece

Finalizing decision on Regulator government tells the court

New Delhi: The central government told the Supreme Court (SC) on Monday that it was in the process of making a final decision on a proposed real estate regulator. “The ministry is in the process of finalising a cabinet note,” additional solicitor-general Neeraj Kishen Kaul informed the court. He asked for six weeks’ time to inform the court of the final decision. This could give a definitive time frame for the real estate regulator, which has been in the pipeline for some time now.

 However, a bench with Chief Justice of India H.L. Dattu and justice A.K. Sikri chided the government for the delay. “How many years have gone?” chief justice Dattu asked the government. 

According to a Press Trust of India report on 17 December, the cabinet had deferred a decision on the real estate development and regulation bill, which will seek to protect home buyers from developers indulging in unfair practices. 

The court was hearing several petitions to bring real estate companies under a regulatory regime. 

The case originated in 2007 with a plea to ensure that fake advertisements by realtors were curbed. However, subsequently, the scope was expanded to include the possibility of a central regulator for the industry.

Read more at: http://www.livemint.com/Politics/f4pIgc6QgkBzr1X8ULxHmL/Finalizing-decision-on-real-estate-regulator-govt-tells-SC.html?utm_source=copy

CCI raps builders calls for reforms

The country’s antitrust watchdog has said flat buyers in India are “left to fend for themselves” in a market which is “largely unregulated”. The Competition Commission of India (CCI) made its observations while letting off, for lack of enough evidence, 20 builders on charges of unfair trade practices and forming a cartel.

 CCI asked its director general to investigate a complaint from consumer Jyoti Swaroop Arora against Tulip Infratech Pvt. Ltd and the Haryana Urban Development Authority. Arora complained of alleged collusion between realtors associated with the Confederation of Real Estate Developers’ Association of India (CREDAI).

The investigation found the actions of developers indicated a “one follows the other” phenomenon, which could not have meant independent action by the builders. However, there was no evidence that CREDAI allowed these 20 companies to fix prices, and limit and control provision of services. The CCI order asked builders to “take appropriate voluntary measures to address the concerns projected in the present case.” Market forces do not create an environment which may lead to the realtors improving their services, the commission noted. Indicating a decline in the self-regulatory mechanism in the industry, the CCI order calls for a reform in the laws to include a regulatory mechanism.

 In light of the proposed Real Estate (Regulation and Development) Bill, CCI hoped Parliament will take steps to implement this bill. Incidentally, on Monday, the government told the apex court in a different case that it was finalizing a cabinet decision on the real estate regulator. The commission also pointed out that consumer protection laws can only redress the complaints of buyers and cannot resolve all issues that may arise between promoters and buyers, showing the need for a separate law. 

Anshuman Magazine, chairman and managing director of property advisory CBRE South Asia Pvt. Ltd, said that there needs to be a lot more transparency in the real estate industry and reforms are required, but it needs to be looked at in its entirety.

While many developers can be pulled up for delaying projects and over-stretching themselves financially, the government also needs some accountability, he said. Providing speedier project approvals and providing infrastructure support are some of the ways in which the government could help.

 “The real estate regulatory bill is a good move towards this, but even that needs to be more balanced and not just install another approval body which will only delay projects further,” said Magazine. “Consumer laws that exist today are not adequately implemented,” he said. 

The order was passed by CCI on 3 February and made available in the public domain on Monday. 

http://www.livemint.com/Politics/1ZEaRYYZ1BjP85FllrRyZN/CCI-raps-builders-calls-for-reform.html