Roy Cokayne
THE listed property sector, with a market capitalisation of about R222 billion and the JSE’s most active sector over the past 12 months, is poised to undergo a significant change that is expected to make it more attractive to foreigners and slightly boost distributions over time to investors.
This follows the JSE publishing new listing requirements facilitating a real estate investment trust (Reit) structure after the National Treasury published Reit tax legislation in October.
This will result in a Reit structure in South Africa becoming a reality from May 1 after a journey of more than six years.
Estienne de Klerk, the chairman of the SA Reit Association committee and an executive director of Growthpoint Properties, said on Friday that 35 companies were listed in the JSE’s property sector, of which six were property unit trusts (PUTs), and would be listed under the Reit board by this time next year.
De Klerk said the SA Reit dispensation provided many benefits, the foremost of which was tax certainty.
Patrycja Kula, the business development manager at the JSE, said the Reit structure was in line with international best practice.
Having a globally understood structure would make the JSE’s listed property sector much more attractive to foreign investors while the tax advantages of the new structure would also make the sector much more attractive to local investors, she said.
More than 25 countries globally use a similar Reit model, including the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK, she said.
De Klerk said listed property as an asset class had notched up stand-out performance in South Africa over the past 10 years and outperformed all other local asset classes – equities, cash and bonds – and also outperformed Reits from the developed world.
“Should all eligible listed property entities be listed as per the South African Reit requirements, it is expected to place South Africa in the top 10 Reit jurisdictions in the world.
“This will put the sector more firmly on the radar of international investors and boost its representation on global Reit indices,” he said.
The JSE rules to list as a Reit include owning at least R300 million of property, keeping its debt below 60 percent of its gross asset value, it must earn 75 percent of its income from rental or from property owned or investment income from indirect property ownership and must pay at least 75 percent of its taxable earnings available for distribution to its investors each year.
Property loan stock companies and PUTs will have to apply to the JSE by July 1 to be listed on the Reit board and show they comply with all the requirements and commit to the ongoing obligations.
De Klerk said the new Reit tax dispensation meant a Reit could deduct all distributions paid to shareholders or linked unit holders as an expense and, if a Reit paid all its distributable earnings to shareholders, it should not have to pay any tax. He said a Reit would also not have to pay capital gains tax (CGT) on any profit from the sale of property while local Reit shareholders would not have to pay securities transfer tax on buying or selling South African Reit shares.
But De Klerk said the benefit from not having to pay CGT was “not a big number” and although there was leakage and more cash would be retained in the vehicle as profits on disposal, this would result in “marginally higher distributions over time”.
“In reality I think the impact will be minimal,” De Klerk said.