FM announces two major factors for Realty Investment
Union budget included some very positive and effective announcements in real estate investment sector. The proposed Foreign Direct Investment in real estate projects will increase funds availability, especially for the affordable housing segment. FDI is being reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in. These minimum threshold limits however will not be applicable for those projects which commit at least 30% of the project cost for affordable housing. Government has also proposed incentives for Real Estate Investment Trusts (REITs) which will have pass through for the purpose of taxation. Announcing this during his maiden Budget Speech in the Lok Sabha on 10th July, the Finance Minister Shri Arun Jaitley said that REITs have been successfully used as instruments for pooling of investments in several countries.
As an innovation, a modified REITs type structure for infrastructure projects is also being announced as Infrastructure Investment Trusts ( InvITs) which would have a similar tax efficient pass through status, for PPP and other infrastructure projects. These structures would reduce the pressure on the banking system while also making available fresh equity. Shri Jaitley exuded confidence that these two instruments would attract long term finance from foreign and domestic sources including the NRIs.
The introduction of REITs will bring funds from retail investors to the real estate sector and would also provide diversification benefit to real estate investors. REITs will be proved to be an effective and vital source of funds for the sector.