Market regulator (SEBI) has introduced fairly comprehensive framework for introduction of REITs/Infra trusts. Further consultations are underway to smoothen out the last remaining hurdles.
Three infra developers have taken approval for formation of investment trusts. The discussion with property developers for formation of REITs is underway.
Long pending issues of taxation have been resolved. The only pending issues are 1) exemption from long-term capital gains taxes for holding period of >3 years (vs one year for equity), 2) Incidence of stamp duty at the state level, 3) tax inefficiencies when multiple level of SPVs are involved. However, most of the experts felt that remaining tax issues are not a deal-breaker and there is high chance that these issues will be resolved in near future.
Since the regulatory framework is largely in place and most tax hurdles are resolved, formation of REITs and Infra Trusts hinges on meeting of developer investor expectations. India has higher long-term bond yields compared to developed countries and it appears that investor expectations of returns are at 300- 350bps above benchmark yields.
Since unlike commercial property, infrastructure assets have finite concession periods (at the end of which asset reverts back to government), the expectations of the yield from infrastructure trusts will have to be correspondingly higher.
Thanks to efforts of regulators and tax authorities, most of hurdles have been resolved. From regulatory/tax perspectives; India is now quite close to seeing formation of initial REITs and Infrastructure investment trusts.
