ASCENDAS india trust ANNUAL REPORT 2014/15
1 India Economic Overview (continued)
New Indian Government (Continued)
According to the United Nations Conference on Trade and Development, India was ranked fourth most popular among
global FDI destinations after China, US and Indonesia. In 2014, the new Government has taken several steps to liberalise
policies for foreign investors. The FDI cap has been raised to 100%
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in railway projects and 49% in the defense and insurance
sector. From May 2014 to March 2015, the Indian Government has cleared 126 FDI proposals amounting to US$ 2.1 billion
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( 128.4 billion).
FDI norms for investing in real estate projects such as townships, housing and built-up infrastructure were also relaxed by the
Government in October 2014
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. This is likely to attract significant foreign fund inflows which will boost urbanisation especially
in Tier II and III cities, which are struggling to develop large projects as developers are wary of taking up such ventures.
During the FY14/15 union budget, the Government announced plans to develop 100 ‘smart’ cities, and has committed
an initial amount of US$115.7 million ( 7.1 billion) to meet its target. Formation of these cities will mobilise employment,
development and create new real estate markets. A “Make In India” campaign
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was also initiated to facilitate investment,
foster innovation and build a world-class manufacturing infrastructure in the country. Additionally, in December 2014, the
Government approved an ordinance
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to amend the Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Bill. This aims to speed up infrastructure enhancement projects by removing the barriers in
land acquisition for sectors like rural infrastructure, affordable housing and industrial corridors.
Real Estate Investment Trusts (REITs)
The Securities and Exchange Board of India (“SEBI”) approved Real Estate Investment Trusts (“REITs”) regulations in September
2014. The introduction of REITs will provide access to funding for developers, better valuations for commercial properties
and a more structured and transparent commercial real estate market. Globally, REITs have reduced individual speculation
in real estate assets and allowed for more professional investment and management thereby increasing participation by
multiple retail investors, invigorating transactions and bringing in more transparency.
With the ever-increasing property prices and huge capital amount needed for real estate investments, retail investors are
finding it difficult to take exposure in the realty sector. REITs once launched, will provide retail investors a platform to
partake in India’s growing commercial realty market. Demand from institutional investors is also strongly expected as REITs
are formally organised, and regulated. The introduction of REITs will provide more liquidity to the real estate sector and
provide an opportunity for developers for an easy exit. With the need for REITs to be actively and professionally managed
and regulated, it will also enhance transparency in the realty sector.
In its FY15/16 budget, the Indian Government proposed various incentives to promote the successful launch of REITs in India.
A sponsor of the REIT is provided with the benefit of concessional tax relating to capital gains arising on the transfer of units
sold on the exchange on which securities transaction tax is paid. For other unit holders, tax is exempted for the sale of units
that are held for at least 36 months. The budget also proposed pass through on the rental income from assets held by REIT’s
directly. Recently Government of India (GOI) through its amendment of Finance Bill on April 30 2015, has provided relaxation
for the sponsors of REIT by exempting Minimum Alternative Tax (“MAT”) on notional gains on transfer of shares of Special
Purpose Vehicle (SPV) to the REIT trust in exchange of units of REIT trust. Government also approved foreign investment in
REITs. This approval enables the foreign investment inflows in to the completed rent generating assets. However REIT controlled
SPVs are still subject to corporate tax and Dividend Distribution Tax (“DDT”), which limit the pass through nature of the REIT,
thereby reducing the overall yield from REITs. Besides needing greater regulatory clarity on tax issues, the launch of a successful
REIT will also depend on the quality of the assets it holds and the income stream that is expected from the holding assets.
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Department of Industrial Policy and Promotion (“DIPP”), August 2014
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Foreign Investment Promotion Board, Ministry of Finance, Government of India
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Press Information Bureau, Government of India
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Ministry of Law and Justice (Legislative Department), Government of India
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I n d i a : E c o n om i c & C omm e r c i a l R e a l E s t a t e
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