In a recent report entitled “Real Estate Investment Trusts (REITs): An Opportunity for Investors and Developers”, global real estate consultancy Cushman & Wakefield estimates the total estimated rental income potential of commercial Grade A stock in top eight cities of India for REITS is USD 7.9 billion (approx. INR 51,800 crore ) by 2019. Of the total estimated rental income between 2015- 19, the existing inventory of Grade A office space could provide REITs an opportunity to generate an estimated rental income of USD 5.4 billion (approx. INR 35,500 crore). The upcoming Grade A supply of approximately 160 msf is expected to add USD 2.5 billion (approx. INR 16,300 crore) in rental income between 2016 and 2019.
REITs once implemented in India would offer a slew of benefits to various stakeholders such as developers, investors and the industry. REITs can proportionately invest in commercial properties across smaller cities that will help in rapidly developing the smaller cities while easing the pressure on the top few cities in India. It will also provide occupiers with a wider choice of cities and tap into a larger pool of human resource. Moreover, the listing of REITs in India would encourage many mid-sized development firms to consider this avenue, as REITs would provide them with exits and an incentive to develop high-grade buildings.
“Owing to high rentals, Mumbai has the potential to generate the highest rental income for REITs till 2019, while in 2016, Bengaluru’s rental income potential is expected to surpass that of Delhi-NCR’s led by increased Grade A supply expected. At a time when balance sheets of developers are stretched, REITs would help developers resolve their fund-raising issues and allow real estate developers with an option to exit projects. Overall, the REITs system is expected to provide a level-playing field for investors and increase transparency in the real estate sector which till date has largely remained opaque,” says Sanjay Dutt, Managing Director, India, Cushman & Wakefield.
Although REITs would likely offer benefits to various parties, there are some challenges that could delay its implementation in India. Taxation norms are extremely critical to the success of REITs in any country. Despite significant relaxations in the tax regime for REITs in India, certain tax issues have kept sponsors away from launching REITs. Under the current regulations, the inclusion of stamp duty and registration charges, Value Added Tax (VAT) Dividend Distribution Tax (DDT) etc. continues to be a hurdle in launching REITs in India.
Download the full report on Real Estate Investment Trusts (REITs): An Opportunity for Investors and Developers
Sitara Achreja, Director, Marketing & Communications
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