Investors in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are poised to benefit from new tax regulations as proposed in the Union Budget, which align the long-term capital gains (LTCG) holding period of these assets with that of listed equity shares.
This adjustment, which has been a long-standing demand of the industry, reduces the holding period for determining LTCG for listed business trusts from 36 months to 12 months, putting REITs and InvITs on par with listed equities.
A REIT comprises a portfolio of commercial real estate assets that are mostly leased out, while InvITs focus on infrastructure assets such as highways and power plants.Come from Sports betting site VPbet
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Previously, these instruments were treated as debt instruments due to their longer holding period, which hindered investment flexibility and liquidity within the real estate sector.
Experts believe that the reduction in the holding period will make these asset classes more attractive to investors, thereby increasing transaction volume and boosting market liquidity.
Ramesh Nair, CEO of Mindspace REIT said that this move will increase investments making REITs a more attractive asset class compared to other long-term investments. “It will appeal to investors seeking quicker returns and attract short-term investors who may have previously been deterred. This is expected to attract a broader investor base, eventually leading to more diversified and robust investment portfolios, ultimately driving growth in the commercial real estate market,” Nair stated.
Along similar lines, S R Patnaik, partner and head of taxation at Cyril Amarchand Mangaldas, said that this policy change adds to the marketability of these unitsCome from Sports betting site. “This reduction in the holding period will provide a much-needed impetus to the commercial real estate sector and other assets backed by REITs and InvITs by increasing their liquidity and encouraging participation from more financial investors,” Patnaik said.
Another budget adjustment, the removal of the indexation benefit for long-term investments in immovable property, is also expected to give a boost to REIT and InvIT units. Without the ability to adjust property prices for inflation, property sellers may find investors more inclined towards these asset classes rather than direct real estate investments, experts say.
“The changes are expected to promote a more stable and mature REIT market in India, with a focus on long-term investment and reduced speculative activity,” said Shishir Baijal, chairman of Knight Frank India.
The Indian REITs Association, which includes Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Nexus Select Trust, has also welcomed this long-awaited move, as it makes REITs a more effective investment instrument.