Embassy Group and Blackstone teams up for India’s first REIT

India’s much awaited Real Estate Investment Trust (REIT) is all set for debut. This mega announcement took place after almost 4 years after the rules were notified and efforts by the government were put in place, regulating it as per the global standards. As per a report in The Economic Times, a joint venture between US-based Blackstone Group and Embassy Group will file documents with SEBI (Securities Exchange Board of India), proposing to raise Rs 5,500 crore through this route. Apart from debuting in India, Blackstone Embassy REIT will be Asia’s biggest office portfolio space, twice the size of office as compared to other continents.

What is a REITs ?

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges, and they offer a number of benefits to investors.

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property.

Historical Perspective of REIT

REIT came into existence during the 1960s when US President Dwight D Eisenhower signed public law 86-779. The main objective of the law was to give all American investors the opportunity to invest in real estate sector, thus laying down the foundation of the first American Realty Trust founded by Thomas J Broyhill.

Benefits of REIT for Indian Investors:

High Yields:

The main attraction of REIT for many investors has been dividend yield. The average yield dividend for REIT was 4.3% in September 2012, more yield of S&P 500 index. The best part of REIT dividends is that they are secured by stable rents from long term leases.

STT (Simple Tax Treatment):

Unlike most ventures, tax issues for REIT investors are straight forward. Each year, REIT would send the form to their shareholders, containing breakdown of the dividend dispersals. For tax tenacities, dividends are assigned to ordinary income, capital gains, and capital return. As REITs do not pay taxes at the corporate level, investors are taxed at their individual tax rate for the ordinary income portion of the dividend.

Liquidity of REIT Shares:

When REIT shares are bought, they are sold in a stock exchange. By contrast, buying and selling property unswerving encompasses huge expenditures and exertion.

The main advantage of REIT in India is that it is structured like mutual funds, which will allow investors to earn through dividend-based returns.