SEZ- The REIT Way To Invest?

By Investoxpert | 20 Dec 2023 | Real Estate

Investment vehicles like mutual funds are called REITs. Purchasing real estate is a REIT's main objective. One way to do this may be to manage them as part of an investment portfolio and lease them out to guarantee a steady yield.

SEZ full form is Special economic zones (SEZ) and industrial parks have also been added. SEZs are becoming a more significant investment channel for REITs.

In the context of India's growing economy, the real estate industry is significant. It multiplies effects across the whole economy. One kind of trust used to own, manage, and invest in real estate assets is a Real Estate Investment Trust (REIT). These could include finished and unfinished assets that are meant to bring in money. These are commercial properties, such as retail establishments, warehouses, and offices.

What Is SEZ?

In India, there are areas known as special economic zones (SEZs) wherein nearby enterprises can obtain benefits. Competitive infrastructure, duty-free exports, tax breaks, and other business-friendly regulations are commonly offered by SEZs. As a result, India's SEZs are a well-liked investment location for numerous global corporations. SEZs have drawn particular interest from exporters.

In an effort to promote export hubs and strengthen domestic manufacturing, the present SEZ Act was passed in 2006. Later on, though, the minimal alternative tax was enforced. Additionally, the sunset provision for eliminating tax breaks was presented. These zones started to get dull after that.

To replace the SEZ Act of 2005, the Indian government suggested the Development of Enterprise and Service Hubs (DESH) Bill. "Enable the establishment, expansion, and maintenance of Development Hubs" is the stated goal of the DESH. These could include currently operating Special Economic Zones, which serve as hubs for fostering economic growth, employment generation, integration with international supply and value chains, maintenance of production and export goals, development of infrastructure, and encouragement of R&D expenditures.

The return to work following the epidemic has been slower than expected, despite the fact that pent-up demand for rentals is still considerable. In the near run, the worries about weaker demand are probably going to be significant.

The REIT investment portfolio has a strong exposure to SEZs, thus the passage of the DESH (new SEZ law) is still necessary to boost occupancy.

What Is SEZ In GST?

When it comes to taxes, there are certain benefits to being in a SEZ. A delivery of products, services, or both to a developer or unit within a Special Economic Zone shall be deemed a zero-rated supply.

This indicates that there is no GST tax applied to these supplies. Put differently, supplies into SEZ are treated as exports and are not subject to GST. As a result, the vendors providing products to SEZs are able to:

Provide goods under a bond or LUT without paying IGST and claiming an ITC credit; or

Provide upon IGST payment and request a reimbursement for taxes paid.

Any delivery of goods or services, or both, to any individual from a SEZ will be deemed a normal interstate supply and subject to the IGST.

What is the objective of REIT?

Purchasing real estate is a REIT's main objective. As part of an investment portfolio, it might be done by managing and leasing them out, as opposed to a listed real estate firm, which is made up of real estate developers and resale brokers. Developers usually own the real estate holdings through Special Purpose Vehicles (SPVs). Several of these assets can be combined under a single SEBI-regulated trust with the help of a REIT investment.

What is REIT Investment in India?

A well-designed infrastructure base broadens the capital base required for every economy to grow sustainably and helps to draw in continued foreign investment. The growth of the corporate environment and the real estate sector drive up demand for hotel and office space. The industry is always in search of fresh funding sources because of a lack of public funding. Real estate investment trusts, or REITs, come into play at this time.

SEBI initially brought REIT investments to the Indian market in 2007. As interest in the investment vehicle increased, numerous regulations were released. These were put in place to help these investment funds run more smoothly. As of right now, REIT businesses listed on Indian stock exchanges are subject to regulation by SEBI.

SEZ Benefits In India

SEZs are established to aid in the rapid economic growth of the country. The following are a few advantages of SEZs in India:

Creation of job opportunities and infrastructure development.

Tax advantages for regional companies and organizations

Upgraded facilities.

Through the creation of new jobs through exports, it promotes the growth of foreign exchange revenues.

SEZ companies are entitled to various incentives, including free water and electricity, a land price discount, and other benefits.

Duty-free industrial parks are the terms used to describe these economic zones in relation to trade, tariffs, and charges.

Put differently, goods and services supplied to sezs are considered exports and are not liable to the Goods and Services Tax (GST).

What Are SEZ Tax Benefits?

The major tax SEZ benefits for the developers are as under:

Exemption From Excise And Customs Duties For Establishing Sezs For Qualified Operations That Have Received BOA Approval.

Income From The Business Of Creating The SEZ Is Free From Income Tax For 10 Years, Beginning In Fifteen Years, As Per Section 80-IAB Of The Income Tax Act. (As Of April 1, 2017, Developers Are Subject To A Sunset Clause.)

Exempt From The CST (Central Sales Tax).

Exemption From Service Tax (SEZ Act's Second Schedule And Section 7, 26).

The 2017 IGST Act Zero-Rates Supplies To Special Economic Zones (SEZ).

Growing Demand For Housing As A Result Of SEZ Development

There are 5,634 approved SEZ units in India as of September 30, 2022. In SEZs around India, about two million people are employed. Cities such as the National Capital Region (NCR), Bengaluru, Hyderabad, Chennai, and Pune are growing, which is a positive sign of the multiplier effect of job creation on the economy, retail consumption, and housing demand. Simultaneously, SEZs with a manufacturing focus have been instrumental in creating demand for reasonably priced housing.

What Is The Latest News on REIT?

Investment in REITs Has Increased Recently

May 2023: Following the COVID-19 epidemic, investments in REITs (real estate investment trusts) increased significantly. This occurred with the introduction of new schemes that maintained some allocation to these new asset classes. According to data produced by PRIME Mutual Funds, by the end of March 2023, the value of the holdings had climbed from Rs 734 crore at the end of March 2020 to Rs 5,200 crore.

The market conditions indicate that there would be seven REITs; the Nexus Select Trust REIT's Rs 3,200 crore IPO is the sixth one at the moment. This week marks the opening of Nexus Select Trust's IPO.

Among the top picks were HDFC MF and ICICI Prudential MF. There were registered investments of Rs 2,002 crore and Rs 1,459 crore, respectively.

Conclusion

SEZs are established to aid in the rapid economic growth of the country. Promoting exports of goods and services as well as encouraging both domestic and foreign investment are the key objectives.

Among the key benefits of investing in SEZs in India, What Is SEZ Unit In GST and the tax incentives offered to local businesses and the advancement of infrastructure. People can invest in pricey real estate, such SEZs, and enhance their capital by getting dividend income with the aid of REIT investments in India.

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