Govt paves way to allow FPIs to debt finance REITs, InvITs

The finance ministry on Thursday said the Finance Bill has proposed amendments to permit foreign portfolio investors (FPIs) an entry into debt financing of emerging investment vehicles – REITs and InvITs. The move is aimed at increasing funds for the infrastructure and real estate sectors. Finance minister Nirmala Sitharaman announced this move during Budget 2021.

"In this context, the Government of India as part of the Finance Bill, 2021 has proposed amendments in the Securities Contracts (Regulation) Act, 1956 and Securities and Exchange Board of India Act, 1992 with consequential amendments in the Securitisation and Reconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 and The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 to confer the power to Pooled Investment Vehicles (defined to include AIFs, REITs, InvITs etc.) to borrow and issue debt securities," the finance ministry said in a statement.

"The necessary notifications would be issued by the concerned regulators after the Finance Bill is passed by the Parliament," the statement added.

In order to make such investment vehicles attractive and lucrative for investors, finance minister also proposed to exempt taxes on dividends on REITs and InvITs. "Debt financing of InVITs and REITs by Foreign Portfolio Investors (FPIs) will be enabled by making suitable amendments in the relevant legislations," the minister said.

REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are relatively new investment instruments in the Indian market. While a REIT comprises a portfolio of commercial real assets, a major portion of which are already leased out. InvIT comprises a portfolio of infrastructure assets such as highways and power transmission assets.

"The proposed debt financing for REIT’s and InvIT’s (through a suitable amendment) is expected to provide a major fillip and will attract more investments for the sector," said Chintan Patel, partner and head, building construction and real estate, KPMG in India said.

"The measures taken for REITs/InVITS for debt financing and exempting dividends from tax deducted at source pave the way for foreign participation in such instruments," said Shravan Sreenivasula, director, investment advisory and products, Avendus Wealth Management.

“To ease access of finance and augment funds for the infra sector, the proposal of providing FPIs an entry into debt financing of REITs and InvITs will open up a large source of fresh funding for the infrastructure and real estate sectors. This will also open up a new avenue for FPIs to invest in a growing market like India,” Manoj Purohit, partner and leader – financial services tax, BDO India said.