India Eases Rules to Allow Foreign Investment in REITs

India eased rules to allow overseas investments in real estate investment trusts, bringing the country one step closer to as much as $20 billion of listings.

REITs will be allowed as an eligible financial instrument under the Foreign Exchange Management Act, the government said in a statement Wednesday.

Trusts will be able to access foreign investments, which were prohibited under foreign-exchange rules. The move clears one more hurdle to the introduction of REITs and will help reduce pressure on the banking system to fund the real estate sector. REITs will enable the industry to raise fresh equity, while attracting long-term finance from foreign and domestic investors, the government said.

The development of the country’s REITs, which Cushman & Wakefield estimates will raise $20 billion through initial stock offerings, has been hindered by tax rules that limit their appeal to investors. Changes announced by Finance Minister Arun Jaitley in the budget for the fiscal year starting April 1 haven’t meaningfully improved the situation, office landlord RMZ Corp. said in March.

The government further amended some taxes last month to remove levies on gains as a result of transfering the asset from the property owner to the REIT.

DLF Ltd., India largest developer, said last month it plans to set up its first REIT when it gets approval.