SA property chief calls for Reits system

Posted On Friday, 30 December 2005 02:00 Published by eProp Commercial Property News
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South African-listed property loan stock companies should consider converting to the international real estate investment trust system, which originated in the US.

Angelique de Rauville

This is the view of Mike Flax, CEO of listed property loan stock company Spearhead Property Holdings.

Flax said one of the benefits of the Reits system was that it would attract foreign investment into SA's listed property sector.

He said the Reits structure in the US was in use on listed property worth more than $300bn.

He said it differed in that it allowed property companies to function without paying corporate or capital gains tax, provided that a high percentage of their earnings were passed on to shareholders, who in turn pay tax on their dividends and capital gains.

He said the Reits system had been adopted in Canada, Singapore, Germany and in France, and was being considered in the UK.

Flax said if Reits were adopted in SA, it would increase foreign direct investment because overseas investors would favour placing their money in a system that they already knew and understood.

SA's listed property loan stocks and listed property unit trusts, which are similar to Reits, generally focus on industrial and retail properties, as well as on offices.

But a new specialised hotel property listing, Hospitality Property Fund, will go on the JSE's main board early next year.

Investec Listed Property Investments MD Angelique de Rauville said capital gains taxation only applied to property loan stocks in the South African context.

She said SA's real estate sector offered something similar to Reits, with its property unit trusts. Although property loan stock companies were "tax transparent" from a "company tax point of view", they were still liable to pay capital gains tax on profit on the sale of assets.

De Rauville said potential foreign investors would be more comfortable investing in Reits rather than property unit trusts and property loan stocks.

She said this is the case, though there are so many similarities and so few differences between property unit trusts and property loan stocks, and the internationally understood Reits.

Pace Property Group MD David Green said the fundamental difference between Reits and the South African listed property sector is that Reits allowed investors to share in capital growth, whereas in SA they shared in the earnings growth and not necessarily the capital growth.

"Having said that, the South African listed property sector is now trading at a premium to net asset value, which in real terms means the investor is sharing in capital growth," said Green.

He said the Reits system was more diversified because in SA there were no listed property vehicles that hold residential or specialised property portfolios, such as hospitals and sports arenas, as in the US.

"What we're being offered in SA is comparable and as competitive as Reits," he said.

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