mumbai real estate investment trusts reits could transform the fragmented real estate stratosphere in india investors who put money in listed units of reits could get both mdash a stabilized return on their investments and appreciation in market value of assets in a regulated transparent environment as of now various challenges remain aspects such as dual tax incidence stamp duties and exchange control laws which prohibit foreign investments may hamper the successful operation of reitsin its draft regulations relating to reits market regulator sebi has broadly applied a framework similar to that of an initial public offer ipo requiring listing of units issued by reits the regulator has also prescribed various norms including those related to minimum offer size public float and size of assets reits are required to be set up as a trust with parties such as the trustee registered with sebi sponsor who sets up the trust manager and principal valuer ldquotypically reits indirectly hold real estate the real estate is housed in a special purpose vehicle spv and income then flows to the trust which holds the spv in india owing to both corporate tax and dividend distribution tax at the spv level the effective tax assuming full distribution of profits is around 436 this makes the mechanism expensive and less attractiverdquo says bhairav dalal associate director pwc india nishith desai founding partner of law firm nishith desai associates explains ldquospv structures are required because at least 90 of the value of reit assets are to be held in completed revenuegenerating properties rdquo the real estate industry would ideally like a singlelevel corporate tax of 30 with the dividend not being taxable at any stage as in singapore experts also suggest capital gains exemption at the time of transfer of real estate asset into reits ie when real estate is swapped for units of reits as there is no monetization at this stage ldquofurther from an endinvestorrsquos perspective laws should also be amended to allow for securities transaction tax to be paid on trading in units of reits and attendant exemption from longterm capital gains taxrdquo adds desai rationalization of stamp duties is also critical for successful operation of reits ldquocurrently transfer of assets by a sponsor to the reit at the initial stage of setting up could be regarded as conveyance attracting stamp duty at the prevailing rates which vary from state to state further stamp duties need to be paid upfront and the funds are raised subsequently hence there is a real risk that the sponsor could be outofpocket if the fundraising is not successful owing to market conditions or otherwise if the minimum capital is not raised sebirsquos draft regulations call for windingup of the real estate investment trustrdquo says nohid nooreyezdan partner at law firm azb partners ldquofurther sebi should clarify if transfer of assets from the sponsor to the reit should be prior to or post listing if the transfer of assets is prior to