Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REIT)

Infrastructure Investment Trusts (InvIT) and Real Estate Investment Trusts (REIT)

Infrastructure and Real Estate are the two most important economical segments in any developing country.

· 2 min read

Background Context

The proposal internal to the Union Budget to tax dividends within the hands of unitholders/ investors would scratch & bruise future InvITs and REITs, say real estate and infrastructure industry officials, experts and analysts.

Helmholtz Institute Freiberg for Resource Technology
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Why and how?

  • Such a choice is oxymoronic to the government’s move to encourage InvITs and REITs to supply tax solidity to long-term infrastructure investors.
  • Unreliability and unpredictability within, the tax regime would sadden the sentiment of foreign investors who are already aware of the steadiness of the tax regime in India, they added.
  • The subsequence tax burden on the shoulders of investors will jeopardize and endanger, plans for take-up (raising) about $100 billion with reference to INVITs and REITs.
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What are Infrastructure Investment Trusts (InvIT)?

It is sort of an open-end fund (similar to mutual funds), which permits direct investment of small amounts of cash from potential individual/institutional investors in infrastructure to gain a little share or portion of the income as a return.

  • InvITs are often served as the enhanced version of REITs designed to suit the precise situation of the infrastructure sector.
  • They are similar to REITs, except invest in infrastructure projects like roads and highways which take a while to produce steady cash flows.
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What are Real Estate Investment Trusts (REIT)?

A REIT is roughly a sort of an open-end fund (similar to mutual funds) that invests in Real Estate although the similarity doesn’t travel much ahead.

  • The basic idea of REITs is that you own a portion (share) of property, then a suitable and relevant share of the income from Real Estate investment come to you, after taking out a relevant share of expenses.
  • Essentially, an idea is the “group of individuals pooling their finances together” and buying real estate except that it’s on an outsized scale (larger scale) and is regulated by the government.
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Why need InvITs and REITs?

Infrastructure and Real Estate are the two most important economical segments in any developing country.

  • A well-crafted infrastructural framework (set-up) drives the general development of any nation.
  • It also facilitates and promotes a steady and gentle inflow of private and foreign investments thereby build-up (increasing) the capital base available for the expansion of key sectors in an economy, also its own growth, in a sustained fashion.
  • Given the importance and criticality of those two segments in the country and the inadequacy of public funds available to stimulate their growth, it's essential that an additional stream of financing is put in the place.