Johannesburg - On April 1 South Africa started implementing a local Real Estate Investment Trust (REIT) regime that will usher in a new era for the listed property sector.
From this date, all property companies currently listed on the JSE either as property loan stocks or property unit trusts will be converting to the new structure. Any new listings in this sector will have to comply with JSE REIT listing requirements.
“The REIT structure is in line with international best practice and having a globally understood structure will make our listed property sector much more attractive to foreign investors," said Patrycja Kula, business development manager at the JSE .
"The tax advantages of the new structure will also make the listed property sector much more attractive to local investors."
South Africa will become the eighth-largest REIT market as listed property funds convert to this system. The new structure will bring about much-needed tax and regulatory changes, according to the JSE.
This change follows the formal announcement of REIT tax legislation for South Africa, published on October 25 2012 by National Treasury, to introduce this internationally recognised structure in the country.
Under this new legislation, capital gains tax is no longer payable on disposal of assets and without this tax activity in the sector will increase.
To qualify as a REIT fund, specifies the JSE, companies need to have:
• a minimum of R300m in assets;
• a total debt to asset ratio of no more than 60%;
• 75% income from property rentals; and
• a distribution minimum of 75% of the distributable profits (dividends).
For investors, there is certainty in that 75% of all net income is paid out and tax exposure is determined only by the tax status of the recipient.
International performance comparisons will be easily made and the investor is protected within an internationally defined and regulated industry, states the JSE.
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