The Securities and Exchange Board of India (SEBI) has proposed to include hotels and hospitals and convention centres under the definition of real estate as part of its efforts to ease norms related to REITs. Earlier this was under the infrastructure domain. Since large townships and commercial parks are now offering the above facilities as part of their rent generating assets, it will now be part of real estate, says SEBI.
REITs had not generated enough interest from investors and hence the move to make it attractive, apart from tax sops. The restrictions on SPVs that are holding companies to invest in other SPVs that own assets are removed, allowing higher proportion of investment in under construction properties. This will do away with costs in terms of stamp duty and tax on dividend /buyback.
There is a proposal to increase number of sponsors from three to five, enabling joint venture partners, developers and multiple schemes/funds of private equity firms to participate in the REITs, collectively identified as sponsors.
The proposed changes also include aligning minimum public holding requirements with Securities Contracts (Regulation) Rules (SCRR). The other change is about allowing REITs to invest up to 20%, up from 10%, in under-construction properties, helping widen the portfolio.
Among other key changes, the paper has sought to clarify the definition of associates so that entities that have no connection to the investment manager or sponsor don’t get included.