From 1 April, all property companies currently listed on the Johannesburg Stock Exchange (JSE), either property loan stocks or property unit trusts, will convert to a Real Estate Investment Trust (REIT) structure and any new listings in this sector will have to comply with JSE REIT listing requirements.
From 1 April, all property companies currently listed on the Johannesburg Stock Exchange (JSE), either property loan stocks or property unit trusts, will convert to a Real Estate Investment Trust (REIT) structure and any new listings in this sector will have to comply with JSE REIT listing requirements.
Patrycja Kula, business development manager at the JSE, explains that the REIT structure is in line with international best practice and having a globally understood structure will make our listed property sector much more attractive to foreign investors.
The tax advantages of the new structure will also make the listed property sector much more attractive to local investors.”
“When South African listed property funds convert to this system South Africa will be the 8th largest REIT market and the REITs structure will bring about much needed tax and regulatory changes,” says Kula.
This change follows the formal announcement of REIT tax legislation for South Africa, published on 25 October 2012 by National Treasury to introduce this internationally recognised structure in South Africa.
Under this new legislation, capital gains tax is no longer payable on disposal of assets and without this tax activity in the sector will increase.
To qualify as a REIT fund, companies need to have:
• a minimum of R300 million in assets
• a total debt to asset ratio of no more than 60 percent
• 75 percent income from property rentals
• a distribution minimum of 75 percent of the distributable profits (dividends)
For investors, there is certainty in that 75 percent of all net income is paid out and tax exposure is determined only by the tax status of the recipient.
International performance comparisons will be easily made and the investor is protected within an internationally defined and regulated industry.
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