REIT guidelines: Fitch seeks more clarity

Credit rating agency Fitch said on Monday the proposed Securities and Exchange Board of India guidelines on Real Estate Investment Trusts will safeguard investors' interest, but sought clarity on whether such investments would also provide tax benefits.

"The REIT will be a trust under the Indian Trusts Act and the taxation will be at the trust level. But it would be good to clarify if the unit-holder would be exempt from paying tax," it said.

Also, the draft proposal should clarify if properties held in the trust would incur any property taxes, the agency added.

The draft proposal for REITs prepared by the market regulator Sebi is aimed at safeguarding investors' interest. "..in an ideal environment, regulatory restrictions on gearing should not be necessary and that investors should be able to choose the risk-reward parameters that suit their needs," the agency said in a release.

Gearing is the ratio of fixed interest long-term funds offered by the REITs to its capital. High gearing is considered very speculative. Sebi has thus proposed restrictions on the gearing level of funds in its draft regulation.

The draft proposes that each Indian REIT is required to have a 'rating from a credit rating agency' at the time of its launch and all REITs with a gearing ratio of 20 per cent or less are a safe and secure investment.

Citing example of Singapore, it said that gearing restrictions would not pose a threat to REIT market.

In Singapore, where gearing level was substantially increased from 25 to 60 per cent during a period, the markets for such investments developed, indicating that such market would continue to boom despite restrictions.