SEBI approves REIT rules

NEW DELHI—In a major boost to construction sector, country’s top market regulator Securities and Exchange Board of India (SEBI) has approved the rules for creation of real-estate investment trusts (REITs) and infrastructure-investment trusts in India.

The step comes a month after Finance Minister Arun Jaitley said these trusts would be given a tax ‘pass-through’ status, meaning they wouldn't have to pay any taxes as long as they pass most of their income to shareholders in the form of dividend.

Industry experts welcomed the rules issued by the Securities SEBI, saying that real-estate and infrastructure trusts will help provide a new source of funding for investors and developers in infrastructure projects.

"We expect this to be a positive move for the capital markets and could also free up some liquidity for real-estate and infrastructure players," said Bhairav Dalal, associate director at PricewaterhouseCoopers in India.

The rules finalized on Sunday state that only commercial properties, such as office buildings can be part of a REIT, and all REITs have to be listed on a stock exchange.

To be eligible for listing, the value of the assets owned or proposed to be owned by a REIT should be worth at least Rs 50 lakh.

REITs will be required to distribute not less than 90% of their net distributable cash flows to investors at least every six months.

Under the rules, at least 80% of the value of the REIT's assets must be in properties that are completed and generating revenue. A REIT can invest only 10% of the value of its assets in properties that are under construction, SEBI said, adding, REITs can also invest a small portion in other securities like mortgage-backed securities and money market funds.

Meanwhile, infrastructure investment trusts will own infrastructure projects. These trusts may or may not be listed on stock exchanges, depending on the kind of assets they own.