Sebi push for Reits, offshore fund managers

The Securities and Exchange Board of India (Sebi) has proposed further relaxations to the real estate investment trusts (Reits) regulations, to attract real estate developers towards launching these instruments. Sebi also proposed a framework to help offshore fund managers relocate to India.

The decisions were taken at its board meeting on Friday. The board approved removing restriction on the Special Purpose Vehicle (SPV) to invest in other SPVs holding assets. It also allowed a Reit to invest up to 20 per cent in under-construction projects.

Earlier, a Reit could invest only up to 10 per cent in an under-construction project.

It also eased the criteria for related-party transactions and allowed Reits to have more sponsors.

“Increasing the limit of investment in under-construction assets allows more flexibility to select projects and reduces the time and transaction costs,” said Maadhav Poddar, tax partner, real estate practice, EY.

Reits are investment vehicles that pool investors’ money to invest in rent-yielding real estate projects like office buildings or shopping malls. Sebi had first introduced Reit regulations two years ago. However, not even a single entity has launched a Reit in the domestic markets.

“The changes proposed are a positive move. Some of these will help industry players to take a decision much quicker on Reits as a possible option. Though the investment up to 20 per cent may increase the risk associated with the Reit, it will also increase the return expectation,” said Bhairav Dalal, partner, tax, PwC India.

The Sebi board also proposed changes to the portfolio managers regulations to enable offshore fund managers to manage foreign money domestically. Currently, a fund manager has to manage a foreign fund investing into India from tax-friendly destinations like Singapore or Dubai.

Sebi put out a procedure for registration of an existing foreign-based fund manager desirous of relocating to India or as a fresh applicant. Offshore fund managers (OFMs) or eligible fund managers (EFMs) acting on behalf of an eligible investment fund (EIF) can register under the PMS regulation.

Sebi said it plans to insert a separate chapter of “Eligible Fund Managers” in the existing rules. Sebi has proposed certain provisions under the PMS regulations which will not be applicable to such money managers.

“Sebi has tried to put in place an enabling mechanism for foreign fund managers to move to India. However, the Indian tax laws are rigid and impractical and may not really allow fund manager to relocate,” said Sandeep Parekh of Finsec Law Firm.

Recently, the government allowed a taxation incentive under Section 9A of the Income Tax Act for offshore fund managers who are keen to relocate to India. A new section in the Act, it provides that the fund management activity carried out through an EFM located in India and acting on behalf of an EIF would not constitute a business connection in India of such a fund.

Sebi said it will soon float a discussion paper on Reits as well as on offshore fund managers for public feedback.

Besides, Sebi has also presented its annual accounts for the financial year 2015-16 before its board.