By TIOL News Service

NEW DELHI, JULY 10, 2014: THE story of real estate may not be too real for the vox populi but it appears the Modi Sarkar is keen to grant the status of an organised sector to this now-infamous sub-sector of the Indian economy. Running ahead of the SEBI, the Union Finance Minister today proposed vital changes in the I-T Act to make this Sector more accountable and look better organised to win back the lost trust of this sort of business.

First, the Real Estate (Regulation and Development) Bill, which seeks to streamline the present manner in which the real estate sector operates today. The concept of real estate investment trusts, is a well accepted business architecture in jurisdictions like the USA, Australia, Japan, France, Singapore and the UK. With the Draft SEBI, Real Estate Investment Trust, Regulations already in place, the parallel reforms in the taxation domain was highly desirable. The Finance Bill, 2014 definitely takes a stride towards this direction. Mr Jaitley has proposed to introduce the concept of “business trust” which means a trust registered as an Infrastructure Investment Trust or a Real Estate Investment Trust (REIT). These trusts would be an additional mode of business structure akin to a real estate company, which can issue units similar to shares to the public. And these units would be listed on a Recognised Stock Exchange, in accordance with the regulations under the Securities Exchange Board of India Act, 1992.

Further, the Bill proposes that REITs would enjoy a pass through status for infrastructure projects. In other words, the trust would not be taxed on its income at the level of the trusts, but only in the hands of the unit holders. The FM has further tried to incentivize investments in these trusts with the option of quick liquidity to the unit holders as opposed to the traditional way of disposing off the real estate. The FM sounded quite optimistic as he expects that with the introduction of REITS, the strain on regular banking sector would be reduced, as these trusts would be allowed to raise equity through issuance of units to both domestic as well as foreign investors in accordance with the SEBI prescribed regulations. Overseas jurisdictions have witnessed that REITs is a far more organized and less risk prone instrument of investing in the real estate sector. Lets hope this positive change is soon replicated in India with the new proposed amendments.