Since the adoption of real estate investment trust (Reit) dispensation in SA, the listed property sector and associated industries have benefited from unprecedented growth, say property experts.
The biggest boost has come from foreign investors who are attracted to high-yielding South African funds.
“The implementation of Reit legislation in SA has catapulted the local market onto the global stage,” Riyaad Khan, a transactor at RMB, said on Monday.
“Reits have attracted a disproportionate share of investment capital for a number of reasons including tax benefits, having to pay regular income distributions and having been easy to understand,” he said.
By adopting the Reit capital structure in 2013-14, many property firms aligned themselves with global best company practice. Tax complications were sorted out for various listed funds.
Before Reit dispensation, property funds either adopted a property loan stock (PLS) or property unit trust (PUT) structure. Over time, these companies were not tax compliant.
“There were tax problems for various reasons. The PLS structure was no longer tax compliant and it was only held because of a special dispensation from the South African Revenue Service. By changing into Reits, the firms no longer had the tax problems which had become inherent in the PLS structure,” said Evan Robins, listed property manager of Old Mutual Investment Group’s MacroSolutions boutique.
Many funds also joined global Reit indices and thereby attracted investment from many foreign index trackers that were mandated to buy exposure to these indices. But while SA’s listed property sector has enjoyed a large level of investment compared with other sectors, some fund managers argue that domestic investors have benefited only from a tax standpoint.
“We do have more certainty around the tax status of Reits but otherwise there have been no significant benefits for local investors,” said Grindrod Asset Management chief investment officer Ian Anderson.
“Many foreign investors didn’t see our PLS companies and PUTs as Reits and so didn’t invest in the sector until after the introduction of Reit legislation.”