Hindenburg Research’s report has cast a shadow of doubt over SEBI Chairperson Madhabi Puri Buch, raising serious allegations of conflict of interest. Among these, a key issue points to her husband, Dhaval Buch, and his advisory role at Blackstone, a major player in the Real Estate Investment Trusts (REITs) sector.
The report suggests that while Madhabi Puri Buch was at SEBI, Blackstone sponsored two REITs that were approved by the regulator, potentially signaling a conflict of interest. Hindenburg further alleges that Buch’s promotion of REITs during this period may have been influenced by her husband’s position.
Both Madhabi Puri Buch and her husband have dismissed the allegations, asserting that there was no conflict of interest. They maintain that all actions were conducted transparently and in accordance with regulatory standards.
So what exactly is REITs?
REITs, or Real Estate Investment Trusts, are companies that own, operate, or finance income-producing real estate. Investing in REITs allows individuals to invest in large-scale, income-generating real estate without actually having to buy, manage, or finance any properties themselves. REITs typically own a diversified portfolio of real estate assets, which may include commercial buildings, shopping malls, apartments, hotels, or even infrastructure projects.
“Today, REITs own a diversified portfolio of real estate assets, including commercial buildings, shopping malls, apartments, hotels, and infrastructure projects, allowing investors to expand their choices. Notably, India’s commercial real estate market could increase the office REIT market size by 6-6.5 times, offering more investment opportunities to those interested in exploring this avenue. In fact, India currently boasts a REIT-ready commercial supply of Rs 5.8-6.2 lakh crore across 7 key cities, with Bangalore alone accounting for nearly 31% of the supply,” said Harish Fabiani, Chairman, IndiaLand Group.
How can you make profit from REITs?
Investors in REITs can earn returns on their investments in two primary ways: dividends and capital appreciation. “By law, REITs must distribute at least 90% of their taxable income to shareholders as dividends. The dividend yields are generated from the total rental income of properties owned by REITs. As a result, REIT investors typically receive a regular income stream. Notably, REITs that invest in commercial properties generate at least 2–3 times higher yields than residential projects,” said Fabiani.
In addition to dividend yields, investors can generate earnings through the appreciation of their share price in a REIT. With an increase in the underlying asset value or the acquisition of more profitable properties, the prices of REIT shares tend to surge. Additionally, investors may choose to sell their shares at a higher price than the initial investment amount to realise a capital gain. In these ways, REIT investors enjoy the benefits of their real estate investments without shouldering the responsibilities of direct property ownership.
There are currently four REITs in India; Embassy REIT, Brookfield REIT, Mindspace REIT and Nexus Select Trust.
What about taxation?
Rental income generated by a REIT is transferred to investors. These investors are subject to income tax on this amount at their applicable tax rates. For Non-Resident Indian (NRI) investors, the tax rate is specifically 10%. Similarly, interest income distributed by the REIT to investors is taxed according to the investor’s individual tax bracket. Dividend income from the REIT is also taxed at the investor’s tax rate, with a 10% Tax Deducted at Source (TDS) applicable. Any other income generated by the REIT is exempt from taxation.