Call to extend REITs regime to unlisted property sector

Posted On Tuesday, 21 May 2013 09:56 Published by Commercial Property News
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THE South African Property Owners Association (Sapoa) is lobbying to see that the favourable tax dispensations of the newly launched real estate investment trust (Reit) structure are extended to unlisted property players.

Estienne de Klerk SAPOA PresidentSapoa’s new president, Estienne de Klerk, said at the Sapoa annual convention in Sun City on Thursday that the association’s Reit committee would lobby the Treasury "to see if this tax dispensation can be extended to all our unlisted members".

The National Treasury recognised that due to the capital-intensive nature of property, "this dispensation will contribute to making it more accessible to the private investor in a tax-efficient manner", Mr de Klerk said.

"I foresee that the listed sector will continue to grow as a result of the tax dispensation."

The Reit structure came into effect this month and is only applicable to the listed sector. The legislation ensures equitable tax treatment for players in a more simplified and internationally recognisable manner.

In the unlisted sector, there is a number of large entities held by institutional investors. Mr de Klerk said the institutional investors "would benefit and are looking for that same dispensation".

Sapoa had held two meetings with the Treasury to discuss the roll-out of the structure to the unlisted sector, and a two-phased approach was likely. "The first phase would be to address the institutional investors — that should be quite easily done because they are already regulated by the Financial Services Board (FSB)," Mr de Klerk said.

The next, and more complicated, roll-out would target unlisted property owners.

While the JSE was the listed space’s regulator, the problem would be identifying who would regulate unlisted Reits. A regulator such as the FSB was unlikely to have the manpower to deal with the high volumes involved.

The process of extending Reits to the unlisted sector was likely to be a relatively lengthy one.

Mr de Klerk said there was also a "small technical corrections note" due regarding Reit legislation. The note would deal with issues including the elimination of debentures — which are linked to listed property groups’ shares. This would be done through the issuance of new shares.

Mr de Klerk said there was nothing in the existing legislation that prevented a company that owned hotels from listing as a Reit. This was provided it met Reit tax rules including that 75% of a Reit’s income had to be derived from rental flows.

But a complication was that hotel companies would have to separate their properties from their operations in order to meet this rule. The properties would be in a separate vehicle, and the operating company would collect "tariffs" and sign a rental agreement with the property vehicle.

Hotel-focused property loan stock company Hospitality Property Fund is listed on the JSE’s real estate board.

City Lodge Hotels CEO Clifford Ross said the conversion to a Reit "was considered a couple of years ago", but the company believed it to be "more appropriate for it to continue to be listed in the sector where it currently resides on the JSE".

Source: BD

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