Real Estate

Foreign Investment starting to line up

V & A Waterfront, Cape Town
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The new Real Estate Investment Trust (REIT) structure, scheduled to become available to the South African property sector in early 2013, will both benefit local property structures and increase foreign investment opportunities, according to consultancy Grant Thornton.

The adoption of the REIT structure, which is recognised in most key property markets internationally, will revive South Africa's current systems, which are dated and often tedious, through the introduction of a scheme that has been tried and tested internationally, Grant Thornton said last week.

At the same time, the REITs will "bring about much-needed tax and regulatory changes that local property structures could certainly benefit from in the long term," the company said in a statement.

The National Treasury's proposal to introduce this listed property investment regime, aimed at aligning the South African listed property sector with its international counterparts, will also create a more attractive investment structure, significantly enhancing international interest.

AJ Jansen van Nieuwenhuizen, head of tax at Grant Thornton Johannesburg, said the main reason for the overhaul "is because existing local structures, property loan stocks (PLS) and property unit trusts (PUT) are unevenly regulated and subject to different tax treatments, prompting the need for a shared set of regulations.

The Tax Amendment Bill proposing REITs, which was tabled in July, will unify the approach to local property investment schemes and provide greater certainty for international investors.

"The proposed tax framework reflects that global best practice for REITs has been carefully considered, and National Treasury and Sars [the South African Revenue Service] should be commended for taking international considerations into account," Jansen van Nieuwenhuizen said.

"Some of these lessons were clearly learnt from the UK REIT regime, which at first levied a conversion charge of 2% of the value of the property portfolio of REITs wanting to convert and limited the REITs' listing to the main exchange."

In an effort to be more competitive with other REIT markets like Australia and the US, the UK dropped the conversion charge, has expanded listings to the AIM exchange, and has temporarily relaxed the gearing limits.

According to Grant Thornton, South Africa's draft proposals do not contain any of these onerous provisions.

Jansen van Nieuwenhuizen said the new framework would modernise the rules governing South Africa's property investment regime and attract foreign investment.

PUT and PLS structures that comply with the proposed REIT requirements will benefit from certain tax dispensations, specifically, an exemption from capital gains tax (CGT).

"These tax features are certainly strong benefits of the proposed structure," Jansen van Nieuwenhuizen said.

He also pointed out that a company wishing to register as a REIT had to be listed, or intend to list, on the Johannesburg Stock Exchange (JSE) and comply with all listing regulations.

At present, there are no listing requirements for PUTs, although they are regulated closely by the Financial Services Board (FSB).

"The introduction of REITs will expand the investment options available to those PUT structures that elect to register."

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