New REIT regulation for SA expected in 2013

Posted On Monday, 20 February 2012 02:00 Published by
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SA's new real estate investment trust legislation has been earmarked for finalisation in 2013.

JSE

"The internationally-recognised REIT structure exists in countries such as the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK," explains Estienne de Klerk, REIT committee chairman of the Property Loan Stock Association (PLSA), which is spearheading the SA initiative to establish a best-of-breed REIT vehicle.

"Introducing the REIT structure will bring SA listed property investment in line with international norms."

Over the past 10 years, listed property has become the most active sector on the JSE in terms of new listings, mergers and acquisitions.

It has shown resilience and relevance. It has also grown, matured and volunteered an extremely high level of stakeholder transparency.

Presently the listed property sector comprises five property unit trusts (PUTs), but about 20 property loan stocks (PLSs), the largest of which are major counters on the JSE: Growthpoint Properties, Redefine Properties and Hyprop Investments. These numbers reflect the industry's preference for the PLS structure.

PLSs have also been responsible for the sector's growth, and represent its most thriving counters.

The listed property sector has been working with the National Treasury for over five years to formalise REIT legislation in SA.

Neither of the current structures - PLS or PUT - offers the uniformity and simplicity to facilitate international investment. In addition, there has been some potential for tax uncertainty, which is in itself enough to deter some international investors.

"The REIT structure typically provides for the flow-through of net rental to the investor, after expenses and interest. This income is ultimately taxed in investors' hands, as is normal," says De Klerk.

REIT legislation discussions were initially slow as a result of the various industry complexities and a number of immediate issues facing the National Treasury, highlighted by the global financial crisis.

However, the April 2011 tax legislation amendment bill raised the priority of REIT legislation, particularly the proposed Section 8G which deals with debentures with no specified termination date.

"Had it not been willingly suspended by National Treasury, this section would have resulted in the debenture interest distributed out of PLS companies being taxed as a dividend," notes De Klerk.

"This would have destroyed significant value in the listed property sector."

The proposed amendment was never intended to have a negative effect on the sector and was, in fact, designed to prevent tax leakage in other structured finance transactions.

National Treasury suspended Section 8G until the successful completion of REIT legislation, which it has stated is a priority and is intended for finalisation by the end of 2012 or early 2013.

De Klerk reports that considerable progress is being achieved with the potential proposed REIT regulations, as well as seeking an appropriate regulatory framework and efficient REIT structure for SA.

"National Treasury has committed a vast deal of time to understanding the listed property industry and defining areas to benefit from regulation and excluding those that won't".

The sector, through the PLSA, Association of Property Unit Trusts (APUT) and appointed REITs advisors, has had various productive meetings with the National Treasury Tax Policy Unit as well as the JSE Limited and Financial Services Board.

Last modified on Friday, 18 April 2014 18:33

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