South Africa’s successful listed property sector has recently received another boost with the launch of the South African Real Estate Investment Trust (REIT).
The REIT scheme seeks to bring the country’s listed property sector in line with international standards. As of 1 April 2013, all property firms listed on the Johannesburg Stock Exchange (JSE) as either property unit trusts or property loan stocks will convert to the new structure. In future, all new listings by firms in the same sector will have to comply with the REIT requirements as well. Upon conversion, it is expected that the South African REIT scheme will become the eighth largest in the world.
Qualifying companies will need to have the following attributes in order to convert to the REIT scheme. Firstly, they need to house assets of at least R300 million. Their debt to asset ratio should be no greater than 60%, and paid dividends should be at least 75% of distributable income. Finally, 75% of income should originate from property rentals.
According to Patrycja Kula – Business Development Manager of the JSE – “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.” This is mainly due to the fact that it will introduce numerous regulatory changes and tax benefits to investors.
Adhering to international regulatory procedures will protect investors, whilst allowing them to easily make comparisons to other countries operating within the REIT structure. The guarantee that investors will collectively receive at least 75% of distributable income is sure to provide peace of mind to potentially wary investors, whilst in terms of tax benefits, they will no doubt be celebrating the abolishment of capital gains tax being payable upon the disposal of assets. Together, these controls are set to encourage increased investment in the sector.
The South African listed property sector has enjoyed much success over the past few years, largely maintaining growth even through the national recession in the 2008/2009 period. If we are to ignore recent losses of approximately 1% amidst major shifts announced by key players in the market, the sector has enjoyed close to 7% growth this year alone.