Money to flow into REITs & InvITs as debt, too

The Economic Times | 3rd February, 2021

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs) are expected to attract more investments as the government has now decided to enable these business trusts to raise debt funding by making a suitable amendment. 

Finance Minister Nirmala Seetharaman, as part of Union Budget 2020-21, has announced that an amendment will be made to help these trusts raise debt funds from foreign portfolio investors (FPIs). 

Global institutional investors and sponsors of REIT and InvITs have been seeking the government’s push to enable REIT and InvITs’ debt raising from insurance companies and FPIs. 

“Globally institutional investors are amongst the largest investors in business trust debt, as the credit and risk profile meet their liability management needs. This announcement of enabling the FPIs to invest in debt securities of REITs and InvITs will give the much-awaited push for the participation of such institutional investors in debt funding of these instruments,” said Sigrid Zialcita, CEO, Asia Pacific Real Estate Association (APREA). 

Zialcita, on behalf of APREA welcomed the proposal, which was also made in 2019 and offered commitment to provide inputs as necessary to ensure it is operationalized as early as possible. 

Despite the Finance Ministry’s approval in Union Budget 2019 for the debt funding, these entities are still not able to get access to liquidity through this channel. 

The Budget has also exempted dividends paid to REITs or InvITs from Tax Deducted at Source (TDS). 

“The proposal to exempt dividend payments on REITs and InvITs from TDS will play a key role in boosting global and domestic investor sentiment in the sector. This will provide a huge push to the real estate and infrastructure sector…Will also help in boosting the creation of income-generating infrastructure like roads, railways, and power transmission lines,” said Rajesh Narain Gupta, Managing Partner, SNG & Partners. 

Since the first listing three years ago, the market has grown quickly to seven InvITs and three REITs across infrastructure assets like roads, power transmission, commercial real estate and gas pipelines with a market capitalization of $18 billion. 

InvITs and REITs have the potential to emerge as an important tool to address India’s gigantic infra financing needs. Debt market depth, greater understanding of operating and credit risks among investors and unitholders, and stable regulations are essential to achieve projected growth. 

REITs and InvITs can potentially raise up to Rs 8 lakh crore of capital for India’s infrastructure buildout over the next five fiscals, showed a CRISIL NSE -0.07 % Ratings analysis. 

Both the fundraising avenues are gaining currency in India, following the footsteps of the developed world and a deeper debt market where investors can discern risks and returns across infrastructure asset classes, and stable regulations will be critical to achieving this goal.