Industry has to get it REIT

Posted On Tuesday, 03 February 2009 02:00 Published by eProp Commercial Property News
Rate this item
(0 votes)

SA is soon to follow the international trend whereby property loan stock companies and property unit trusts will be structured as real estate investment trusts (the REIT model), with final legislation hopefully in place next year.

Estienne De Klerk







The principle of a REIT is that it would serve as a conduit for property income that is not taxed in the investment vehicle itself but in the hands of the shareholders/investors. A transparent flow-through principle is at the heart of these structures.

At present, certain structures in the property loan stock companies could give rise to income and capital-gains taxation uncertainty and inconsistencies, and may even be challenged by SARS. This deters foreign investors who are more familiar with the REIT model.

All involved parties — bodies such as the Association of Property Unit Trusts and the Property Loan Stock Association, the treasury, the Financial Services Board and SARS — are working hard at resolving issues highlighted by the broad-based White Paper guideline for REITs, with much detail to be fleshed out and some concerns to be addressed.

Estienne de Klerk, Growthpoint executive director, says an issue to be debated is the level of regulation that the treasury intends imposing on the REIT industry.

“The treasury envisages a heightened level of investor protection under the new framework, similar to what we presently see for collective investment schemes (unit trusts).”

De Klerk says the loan-stock companies (both listed and unlisted) and the property unit trusts are negotiating with the treasury about an appropriate level of regulation for REITs.

He says that under the present broad framework two categories of REITs are proposed, prudential and nonprudential, with various investment criteria and restrictions for each class.

“We certainly acknowledge that in return for the tax certainty afforded to our industry some enhanced regulation is required. But we need to agree on just how much additional regulation is appropriate. All parties are negotiating in good faith with the common objective of finding an acceptable solution. The property loan-stock industry viewpoint is that investors in this sector are mostly institutions, pension and provident funds, and unit trusts — a very sophisticated and informed profile. Even the retail investors in this sector are highly knowledgeable and we therefore recommend that a lower level of regulation would be more appropriate. While we would welcome enhanced regulation that protects investors, it should not be so severe that it impacts negatively on this sector, particularly on the smaller participants, and stifles entrepreneurial spirit.”

De Klerk says SA’s move to a REIT structure will certainly make this sector more attractive to international investors, increasing its global acceptance and appeal.

Last modified on Friday, 18 April 2014 14:28

Most Popular

Residential property market gathering momentum, says Eazi Real Estate

Nov 18, 2020
In this last quarter concluding in December 2020, the residential property market…

Lockdown impacts buying trends of generations of home buyers

Nov 15, 2020
The Covid-19 pandemic and lockdown has been a catalyst for highlighting the different…

Second-hand shopping is being revolutionised and expanding the circular economy

Nov 18, 2020
EPP CEO_Tomasz Trzoslo
Conscious consumers are championing the resale of goods to reduce waste and extend the…

Pam Golding Properties awarded Best Real Estate Agency in South Africa in International Property Awards

Nov 18, 2020
IPA Awards Pam Golding Properties 2020 - 2021
Competing against real estate companies from around the country, this is the 14th year…

SA commercial real estate delivers in excess of 12% yield on equity

Nov 18, 2020
Steven_Brown (1)
A silver lining amongst the many dark clouds dominating South Africa’s current economy…

Please publish modules in offcanvas position.