Government leads the way for REITs and InvITs to be debt-financed

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The finance ministry said on Thursday that the finance bill proposed amendments to allow foreign portfolio investors (REITs) to access debt financing from emerging investment vehicles – REITs and InvITs. This move aims to increase funds for the infrastructure and real estate sectors. Finance Minister Nirmala Sitharaman announced this decision in the 2021 budget.

“In this context, the Government of India, as part of the Finance Bill 2021, has proposed amendments to the Securities Contracts (Regulation) Act 1956 and the Securities Contracts (Regulations) Act 1992. Securities Commission of India, with consequential amendments to the securitization and reconstruction of the Assets and Enforcement of Security Interest Act, 2002 and The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 to confer power on investment vehicles. ‘investment pools (defined as including AIFs, REITs, InvITs, etc.) to borrow and issue debt securities, ”the finance ministry said in a statement.

“The necessary notifications would be issued by the regulators concerned after the adoption of the budget bill by Parliament,” the statement added.

In order to make these investment vehicles attractive and lucrative for investors, the Minister of Finance has also proposed to exempt taxes on dividends from REITs and InvITs. “Debt financing of InVITs and REITs by foreign portfolio investors (REITs) will be made possible by making appropriate changes to relevant legislation,” said the Minister.

REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are relatively new investment instruments in the Indian market. Whereas a REIT comprises a portfolio of commercial real estate assets, much of which is already leased. InvIT comprises a portfolio of infrastructure assets such as highways and power transmission assets.

“The proposed debt financing for REITs and InvITs (through an appropriate amendment) should provide a major boost and attract more investment for the sector,” said Chintan Patel, partner and head of construction of buildings and real estate at KPMG in India. .

“The measures taken for REIT / InVITS for debt financing and the exemption of dividends from withholding tax paves the way for foreign participation in such instruments,” said Shravan Sreenivasula, director, counsel in investment and products, Avendus Wealth Management.

“To facilitate access to finance and increase funds for the infrastructure sector, the proposal to provide REITs with entry into REIT and InvIT debt financing will open up a significant source of new funding for the infrastructure and infrastructure sectors. real estate. It will also open a new avenue for REITs to invest in a growing market like India, ”said Manoj Purohit, Partner and Financial Services Tax Officer, BDO India.

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