Reit vehicle to pull in punters

Globally, investment-grade property has seen a re-rating in value and a surge in investor demand.

Norbert Sasse, chairman of the Property Loan Stock Association (PLSA), and CEO of Growthpoint Properties, said that the performance of investment-grade property had been one of the factors to fuel the move towards listed real estate investment trust (Reit) structures around the world. Reit structures exist in the US, Australia, Belgium, France, Hong Kong, Japan and Singapore, among others.

The UK adopted the structure this year and companies which made the transformation to the Reit structure, such as Liberty International, are vocal about the benefits.

Sasse said that the South African investment property sector had delivered attractive returns over the past few years, but neither of the current structures - property loan stock or property unit trusts - offered international investors the uniformity and simplicity they demanded.

There has been some potential for tax controversy, which also serves as a deterrent for international investors.

As a result, the PLSA is spearheading a South African initiative to establish a best-of-breed Reit vehicle.

"This would serve to address disadvantages and weaknesses in the investment property vehicles currently in use in South Africa, and to give the public face of listed property vehicles the uniformity and simplicity that could serve to attract international capital," Sasse said.

In line with this approach, various key features have already been identified for the ideal SA Reit.

The PLSA has appointed Andrew Brooking, a director at Java Capital, to be the driving force for this transition to Reit, supported by a working group of representatives of the PLSA, invited participants from unlisted property loan stock companies, the SA Property Owners Association and the Association of Property Unit Trusts.

Sasse said that other stakeholders, such as the national Treasury and SA Revenue Services, are being engaged as vital contributors.

Brooking said that the Reit vehicle took many forms around the world, including trusts and companies and combinations of the two.

However, he said that in the SA context, for uniformity and simplicity, Reits should be carried on in the form of companies incorporated under the Companies Act of 1973.

"A corporate Reit could pay dividends and give effect to the flow-through principle. This is already in place in our tax legislation as regards dividends of property-owning companies held by collective investment schemes in property," said Brooking.

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