What are REITs?
REITs are similar to mutual funds. While mutual funds provide for an opportunity to invest in equity stocks, REITs allow one to invest in income-generating real estate assets.
How does an REIT work?
- REITs raise funds from a large number of investors and directly invest that sum in income-generating real estate properties (which could be offices, residential apartments, shopping centres, hotels and warehouses).
- The trusts are listed in stock exchanges so that investors can buy units in the trust.
- REITs are structured as trusts.
- Thus, the assets of an REIT are held by an independent trustee on behalf of unit holders.
Taxation structure:
- Short-term capital gain tax is applicable for unit holders at the rate of 15%.
- While interest is tax-exempt for REITs, it is taxable for unit holders.
- The registration charges for every purchase and sale of property is still applicable.
Why in news?
SEBI planning to relax norms for ReITs :
- SEBI is looking to make Real Estate Investment Trusts (REITs) more attractive to investors by allowing them to invest a large portion of funds in under-construction assets.
- Besides, REITs would be allowed to have a larger number of sponsors, while regulations regarding the minimum public offer size and related party transactions could also be eased.
- SEBI is also planning to remove curbs on the SPV to invest in other SPVs holding the assets, which in turn would allow REITs to invest in a holding company owning stake in SPVs