Union Budget 2024 | Investors base of REITs likely to rise with changes in LTCG rules, say experts

New Delhi: The government's decision to reduce the holding period for determining long-term capital gains for REITs to 12 months would help in broadening the investor base of this financial instrument, according to industry experts.

According to the Union Budget 2024 document, the government has reduced the holding period for determining long-term capital gains for business trusts -- Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) -- from 36 months to 12 months.

"Thus units of listed business trust will now be at par with listed equity shares at 12 months instead of earlier 36 months," the document noted.

A REIT is made up of a portfolio of commercial real estate assets, the majority of which are already leased out.

Commenting on the move, Ramesh Nair, CEO of Mindspace REIT, said this would enhance liquidity, boost transaction volume, and increase investments, making REITs a more attractive asset class compared to other long-term investments.

"It will appeal to investors seeking quicker returns and attracts short-term investors who may have previously been deterred. This is expected to attract a broader investor base eventually leading to more diversified and robust investment portfolios, ultimately driving growth in the commercial real estate market," Nair said.

Aravind Maiya, CEO of Embassy REIT, welcomed the move that the LTCG (long term capital gain) regime for REITs matches that of listed equities.

"Embassy REIT’s unitholder register has over 1 lakh holders, a 25x increase since our IPO. The reduction of the LTCG period from three years to one illustrates the commitment of our regulators to growing this critical asset class," Maiya said.

Indian REITs Association, which has been formed by four listed REITs, hailed the decision to reduce the holding period for determining long-term capital gains for business units.

"This change addresses a long-standing industry request and enhances liquidity in Indian REITs, making them more effective investment instruments. Previously, investors were required to hold units of business trusts for 36 months to qualify for the long-term capital gains tax rate.

"This extended holding period often acted as a barrier to investment flexibility and liquidity, particularly in the real estate sector," the association said.

"By shortening the holding period to just 12 months, the Union Budget fosters a more agile investment environment," it added.

The Indian REITs Association, a non-profit group formed under the guidance of the Securities and Exchange Board of India (Sebi) and the Ministry of Finance, has four founding members -- Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Nexus Select Trust.

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