As it now stands property companies sit with net asset values reduced by the provision for deferred tax. The capital gains tax exemption under real estate investment trust (Reit) regime allows loan stocks converting to a Reit regime to eliminate this deferred tax.
This provides unlisted property players a major incentive to list.
"There are a lot of listings in the pipeline and some of them have this in mind as one of their objectives," says Brooking.
He says the Treasury has said it intends to extend the Reit dispensation to unlisted qualifying entities, "but this is in process" and may take some time before it becomes a reality.
A good example of this is the introduction of the Reit regime in the listed property universe.
In 2006 the listed property sector first started holding presentations and conferences about the advantages of converting to a Reit regime in South Africa. It has taken about seven years for a Reit regime to be officially legislated and put in place.
Listed Reits will also have the added advantage of being governed by the JSE’s listing requirements.
"Because they (listed Reits) are governed by the JSE’s listing requirements, there is a well-established governance and investor protection regime," says Brooking.
He says that for unlisted Reits the challenge will be to create the similar governance and investor protection afforded to listed vehicles.
Brooking says commercial property association the South African Property Owners Association is interacting with the Treasury about unlisted Reits and what potential governance and investor protection regime could be introduced.
Source: BD
