This move is expected to enable the retail investors to participate in the booming real estate sector of the country. Furthermore, this proposal is expected to widen the source of financing real estate projects. Till now, the sources of financing have been limited to housing loans, mortgages, Initial Public Offerings (IPOs) and follow-on offers, private equity, joint ventures, etc. However, it may take time for the players to understand and accept this move as they are used to financing property through conventional routes.
The emergence of REITs first emerged in the US during the 1960s and subsequently spread over to various markets such as Australia, Canada, Germany, Hong Kong, Japan, Singapore, the UK, etc. Now India is in the process of introducing the same. Internationally, REIT is synonymous to tax designation assigned to a corporation which invests in real estate and reduces the incidence of corporate income taxes. As per Internal Revenue Code in the US, REITs are required to distribute 90% of their taxable income among the investors. They are also required to invest at least 75% of their total assets in real estate. Like corporations, they can be either publicly-traded or privately-held. Publicly held REITs are listed on the stock exchanges. And the REITs are required to file reports with the Securities and Exchange Commission (SEC). There are more than 200 REITs in the US with the asset size of more than $500 bn. They invest in different real estate-related assets like shopping malls, office buildings, etc. The most popular REITs in the US are the Washington Real Estate Investment Trust (WRIT) and the Pennsylvania Real Estate Investment Trust (PRIT).
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