A new research report commissioned by APREA and sponsored by Perpetual has found that regulatory certainty is an important factor for investors to consider when deciding whether or not to invest in REITs (Real Estate Investment Trusts) in a particular jurisdiction.
Australia rates the highest for regulatory certainty in the Asia-Pacific region, followed by Singapore, according to the report. The regulatory certainty plus several additional favourable factors makes the two markets the most preferred in the region for investors in REITS.
This is the first comprehensive study of regulatory and tax regimes of REITS in the Asia-Pacific region.
The study highlighted the different ways in which REITs are regulated and taxed in the region, focusing on REIT structure, nature of operations, capital management, investor reporting, alignment of interests, related party transactions and regulatory and taxation issues.
It found there are many similarities but also, particularly at the more granular level, significant differences, and identified important aspects of regulation and tax and is underpinned by an extensive survey of investors’ evaluation of how well these issues are addressed in the various jurisdictions.
The regulation of REITs in the major regional regimes of Australia, Japan, Singapore and Hong Kong differs in many respects (for example, their approach to development, tax, gearing levels and permitted investments).
However, overall, there is a view that in terms of management and investment choices, REITs provide what investors want, with the exception of the option of internal management and an appetite for more development activity than is currently permitted (with the exception of Australia).
The survey identified many features of global REITs considered by investors to be important which are not necessarily present in Asian regimes, or not provided for sufficiently. These include:
- The need for management that is local to a REIT’s country of operations
- A strong preference for gearing of 50% or less
- The need for the same capital management tools as operating companies (the lack of this feature put significant strain on many Asian REITs during the 2008 global financial crisis)
- No limitation on foreign ownership of REITs
- A strong preference for semi-annual or quarterly reporting against benchmarks
- A strong preference for semi-annual or annual independent market valuation of assets
- The importance of effective regulation of related party transactions (Australia, followed by Singapore, are seen as being the jurisdictions having the greatest level of market confidence and integrity in this respect)
- The need for a REIT to be a flow-through entity for tax purposes (there was unanimity in this respect amongst survey respondents)
Peter Mitchell, Chief Executive Officer of APREA, said: “This is a very important study, clearly explaining the differences in the ways in which the different REIT markets in Asia-Pacific are regulated and taxed, and why some find more favour with investors than others.
“It emphasises the essential requirement of proper tax treatment – REITs are in essence a vehicle to enable property to be traded publicly as well as directly. For this to work there has to be the same tax treatment for both and that’s one reason why institutional investors are particularly attracted to the REIT markets of Australia and Singapore.”
Andrew Cannane, General Manager, Corporate Client Services, Perpetual, added: “This is the first comprehensive study of regulatory and tax regimes of REITS in Asia Pacific. This study will promote REITs as an investment class through a more thorough understanding and explanation of differences in structure and regulation of REITs across Asia Pacific.
“It is no surprise to us that Australia and Singapore come out on top in this survey due to their strong regulatory framework, reporting, valuation guidelines and governance in relation to related party transactions.
“It supports our commitment to providing independent fiduciary services in both of these markets where we expect to see continued growth in the years ahead.”
Andrew Batt, International Group Editor of PropertyGuru Group, wrote this story. To contact him about this or other stories email andrew@propertyguru.com.sg
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