There is “absolutely no doubt in my mind that the unlisted Reit is an important aspect” of the whole debate about the introduction of the structure to SA, he says.

The US has unlisted Reits, and tax legislation that will allow for Reits in SA should not specify that a company be listed or unlisted if it is introduced into the country, he says.

It is not the usual practice of governments to differentiate between a listed and unlisted company at a tax level.

“The choice of listing is purely one of access to capital markets and capital raising.”

Young says there are “huge” benefits to catering for unlisted Reits. “You are not open to the pricing volatility of the listed market. The capital value will be determined through net asset value, not the share price.

“By having unlisted Reits we can get to a situation where we have a justifiable fourth asset class which behaves differently to equity, bonds and cash because the correlations are very low.”

Young says an unlisted Reit would be an important vehicle to consider for the institutional pension fund market because most institutions that own properties are run on a notional basis.

This means the fund itself is not a tax entity, but the properties that it owns are.

In other words, the South African Revenue Service recognises the policy and the physical properties as two separate tax entities, but not the fund itself.

“If you have a Reit system, the fund will be recognised as a tax entity, which is currently not the case because the policy and property are the two taxed assets.” A Reit system would create tax benefits.

Young says the current situation causes capital gains tax complications for the pension fund industry. “Capital gains tax is exempt in the Reit system, which means taxed pension funds would be exempt from capital gains tax, which is a benefit.”

If pension funds utilised a Reit vehicle they would be creating a tax transparent vehicle, says Young.

The Property Loan Stock Association, which represents 25 South African-listed property loan stock companies, is one of the most vocal proponents of the Reit structure.

The leading Reit market is the US, with a $478bn market capitalisation and 159 listed Reits. Listed property companies in Europe have also adopted the structure and the UK is set to introduce it next year.

One of the advantages of Reits is their tax efficiency. The property company passes earnings directly to unitholders without paying corporate or capital gains tax. Unitholders pay tax on their gains.

Property pundits believe SA should consider adopting the globally recognised Reit structure to woo foreign investors.