Stamp Duty for property transfer

Following representations received by the prime minister’s office (PMO) from both domestic and foreign private equity players in the past two months, Finance Minister Arun Jaitley is expected to consider the issues of scrapping stamp duty on transfer of properties by private individuals and firms to real estate investment trusts (Reits) and making dividend distribution tax (DDT) ‘pass through’ for Reits and investors in the trusts. Tax levies, including DDT and stamp duty issues, were flagged by top investment bankers and chief executives of companies like JP Morgan & Blackstone.

The real estate industry, equity investors and international trusts have represented to the government for granting “pass through status” for dividend payments by Reits. In effect, rental income from assets with the trusts would not be liable for tax as and when these assets or units are returned to the investors.

The demand for exemption from payment stamp duty and DDT was put forward after the government recently scrapped long-term capital gains tax on transfer of Reits units by their sponsors or investors. An exemption on payment of minimum alternate tax (MAT) when investors transfer shares to the Reit or on sale of Reits units was also granted by the Government recently.

Pending tax issues have been dissuading equity investors and real estate companies from making it big in real estate investment trusts (Reits) and infrastructure investment trusts (InvITs), rating agency CARE said in a note. In his last budget, finance minister Jaitley had given hope to real estate companies looking to list their rent-yielding real estate assets through Reits. Reports from various analysts suggest that the potential for Reits listing in India was about $ 20 billion since in May, the Union cabinet allowed foreign investors to take exposure in Reits to bring in capital and reduce the debt liability of domestic real estate companies.

As per estimates made by real estate firm Raheja Group, the top seven cities of India have more than 400 million square feet of operational office space; of which, over 150 million sq feet would be ready for Reits listing by April.

The largest realty developer, DLF has announced plans to start two Reits, with one exclusively for commercial office space. The company plans to monetize about 30 million sq feet office and retail space by the end of this financial year.

“The government may not wait till presentation of Budget in February next year, instead, it may shortly notify the exemption on payment of stamp duty on transfer of properties to Reits,” confirmed a PMO official. “Exempting Reits completely from payment of DDT might need further discussion,” he added.

Supertech to raise Rs 500 crore

The leading real estate firm Supertech is planning to list its six of the rented as well as operational malls with REIT (real estate investment trust) to raise Rs 500 crore in the duration of next two years which is the year 2015 and 2016. As per one of the latest survey Supertech has more than 2 million sq ft of retail space in its six malls out of which two are in Ghaziabad and one each is in Noida, Rudrapur, Haridwar, Rudrapur, and Meerut.

However there are few products under construction by Supertech. Currently Supertech is in discussion with one of the Singaporean company which has experience in setting up the real estate investment trust in various real estate markets. As per the statement of officials we are in the starting stage for the listing of our assets and REITs own the properties to get the rental income and distribute it among investors. For real estate investors they provides high dividend with a liquid option where one can invest in the real estate sector.

Most of the real estate firm in the country and as well as some of the private-equity funds are showing interest to set up the REITs because stock market regulator SEBI (Securities and Exchange Board of India) notified its rules to list the trusts in September 2014 with a aim to view and attract more and more funds in a transparent manner, so that real estate developers can pool the money for the development of new projects. But till now no REIT is listed in India and it’s just because the lack of clarity in taxation process. With a aim to encourage local listing, central government is decided to do some capital gains in the favor of sponsors in the Union budget of 2015 at the time of listing of REITs on rental income.

However the capital gain will be applicable for all the direct transfer of same or different assets to any kind of these trusts. But still the budget is not offering any clarity on dividend distribution t as. The major real estate developers such as; RMZ, DLF, Embassy Office Parks, Ambience and many others with PE firms such as; Kotak Realty Fund, Red Fort Capital and Blackstone is known for listing their assets as REITs. They have develop the acquired rent producing assets in past few years as it could attract more than $1 billion or Rs 6,280 crore in 2015 witht eh additional tax benefits announced in the union budget of 2015, said the property consultant from JLL India. However most of the property experts said that in near future more exemptions can be made by the state as well as central government to make its segment more attractive for real estate players.

But it’s clear that the Capital gains taxes will exempted on the transfer of any SPV (special purpose vehicles set up to carry new real estate projects) share by different or same sponsors but at the MAT ( minimum alternate tax) is still applicable. If the minimum alternate tax will be so it will make REITs more attractive for real estate developer, says Shweta Aggarwal, Director of BMR & Associates.