The Indian Association of REITs has been in discussions with the Securities and Exchange Board of India (SEBI) to highlight the importance of classifying Real Estate Investment Trusts (REITs) as equities. Similar to how mutual funds allow investors to own a fraction of the company, REITs enable investors to own a fractional stake in real estate properties without the need for direct purchase or management.
REITs are companies that own or finance income-generating real estate projects, including workspaces, malls, and more. The basic structure of a REIT involves pooling money from investors and using it to invest in various real estate endeavors. By classifying REITs as equities, a significant development would be the inclusion of REITs in indices, resulting in increased passive flows into REITs. The categorization as equities would enhance liquidity and potentially stimulate more trading. While Indian indices have yet to include REITs, globally recognized investment index providers such as SP Global and FTSE have already incorporated Indian REITs into their components. Classification as equities could align the regulatory framework for REITs with that of traditional equities, particularly regarding capital gain tax. This alignment would undoubtedly be a positive factor for investors involved in REITs. In equity trading, the tax rate is determined based on the holding period. If the holding period is less than 365 days, a tax rate of 15 percent is applied, indicating a short-term investment. On the other hand, if the holding period exceeds 365 days, which is regarded as a long-term investment, the profit from the sale of equity shares exceeding ₹1 lakh would be subject to a tax rate of 10 percent. In the case of REITs, a short-term capital gain tax (STCG) rate of 15 percent is charged on the sale of listed units held for less than 36 months. According to SEBI Chairperson Madhabi Puri, the market for REITs, InvITs (Infrastructure Investment Trusts), and municipal bonds has the potential to grow as large as India’s GDP in the coming years. To facilitate this growth, Puri emphasized the importance of investor awareness regarding the safety and presence of such asset classes. Nevertheless, despite the vast strength of the real estate market in India, REITs currently represent less than 10 percent of the total market capitalization. This indicates tremendous opportunities for further expansion and development of REITs in the country. Sundareswaran, the Managing Director of Morgan Stanley, acknowledged that REITs could venture into sectors beyond office and retail spaces. These potential sectors include hotels, data centers, residential properties, and other multi-assets, presenting various avenues for future growth within the sector. Established under the guidance of SEBI and the Ministry of Finance, the Indian REITs Association serves as a non-profit trading organization devoted to promoting and accelerating the growth and development of REITs in India.
