Rental income potential of Grade A office space stock in eight major cities is estimated at nearly $8 billion (about Rs 51,800 crore) by 2019 which can be tapped by Real Estate Investment Trusts (REITs), a report said.
Real estate consultant Cushman & Wakefield, in its joint report with industry chamber PHDCCI, also made a strong case for completely exempting such trusts from taxation on rent, stamp duty, transfer of assets and distribution of dividends.
“The total estimated rental income potential of commercial Grade A stock in in top eight cities of India for REITs is USD 7.9 billion (approx Rs 51,800 crore) by 2019,” it said.
Of the total estimated rental income between 2015-19, the existing inventory of Grade A office space could provide REITs an opportunity to generate an estimated rental income of USD 5.4 billion (approx Rs 35,500 crore).
The upcoming Grade A supply of approximately 160 million sq ft is expected to add $2.5 billion (approx Rs 16,300 crore) in rental income between 2016 and 2019.
“REITs, once implemented in India, would offer a slew of benefits to various stakeholders such as developers, investors and the industry,” the consultant said.
The listing of REITs in India would encourage many mid-sized development firms to consider this avenue, as REITs would provide them with exits and an incentive to deop high-grade buildings.
Seeking tax exemption on REITs, PHDCCI said in a statement that the cost incurred on various taxes and stamp duty reduces the valuations of REITs and make them unviable and unattractive for investors and corporations.
“Tax efficiency is critical to the success of REITs in India as REITs are not declared tax free, unlike the global practice, and are required to pay tax on rent, stamp duty during transfer of assets and distribution of dividends which costs their valuations,” the report said.
Since REITs are mandatorily required to distribute 90 per cent of net distributable income after tax to investors, the association said that the applicability of dividend distribution tax (DDT) is a dampener.
“To ensure real pass through, it would have been better if the government had dispensed with the DDT in case of REITs,” it added.
In September 2014, market regulator Sebi had notified norms for listing of REITs that would help attract more funds in a transparent manner into the real estate sector.
REITs, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into real estate projects in the country.