REITs

[kongkiti]

SEC to allow REITs in June
Bangkok post
Fri, May 11, 2012 12:00 AM 

The Securities and Exchange Commission (SEC) will permit the creation of real estate investment trusts (REITs) starting in June.

A number of existing property funds are expected to convert to REITs, thanks to more flexible investment rules than existing property fund structures, said Chalee Chantanayingyong, an SEC deputy secretary-general.

REITs are a corporate entity established to invest in property assets such as buildings, land or real estate-related securities. In contrast, existing property funds are more narrowly focused, and generally are established to invest in a specific property.

Prakid Punyashthiti, an SEC assistant secretary-general, said REITs are also allowed to invest in overseas assets and may borrow up to 60% of the cost of investment for an investment-grade asset, compared with the 10% limit for property funds.

And while a property fund is run by a fund manager, REITs have a structure similar to listed companies, including rules requiring the appointment of independent directors, annual general shareholders' meetings and disclosure regulations.

"Global investors are generally more familiar with REITs than property funds. In the US, some 90% of these types of vehicles are established as REITs, as they can be larger and more flexible in management then property funds," said Mr Prakid.

The SEC is negotiating with the Finance Ministry to ease tax and fee charges for property funds wishing to convert to a REIT structure. Currently there are 39 property funds registered in the market with assets as of December of 102 billion baht.

A manager of a REIT must have paid-up capital of at least 10 million baht and a solid financial position. Asset managers must also have experience of at least three years or more, and meet qualifications on work practices and operating systems.

Asset management companies are permitted to establish REITs, while approved financial institutions may serve as trustees.

Mr Prakid said establishing a REIT would require minimum capital of 500 million baht, with the entity listed on the Stock Exchange of Thailand. At least 75% of capital must be invested at any time, and only up to 10% of assets may be invested in incomplete projects.

The SEC also has rules on revenue structures for REITs, which Mr Chalee said should generally derive most of their core revenues from rents, not from returns on general business operations.

[kongkiti]

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[kongkiti]

The right time and place for REITs
Thailand and Vietnam among the emerging markets ready to tap into high investor demand for real estate investment trusts.
Published: 14/08/2012 at 03:05 PM
Newspaper section: Asia focus
http://www.bangkokpost.com/business/eco ... -for-reits

Real Estate Investment Trusts (REITs) in Asia are becoming increasingly attractive for western investors who are seeking a safer haven for their money than the fragile economies in the US and Europe.

However, rules and regulations in a number of emerging markets, notably Thailand and Vietnam, are needed in order to give investors more choices beyond the well established REIT markets such as Australia, Hong Kong and Singapore.

Trading prices that are lower than their net asset values (NAV) have made REITs in Asia very “sexy” for investors, according to a report released last month by APN Property Group, an Australian real estate investment manager.

“There is no better time than now to take advantage of the buying opportunities, which are likely to generate strong risk-adjusted returns over the medium to long term,” it said.

Before the 2008 global financial crisis, units in Asian REITs were trading at an 8% premium to book value. During the crisis they traded at discounts of up to 40% to book value. The last time REITs in Asia traded at NAV was in December 2010, according to APN.

The REIT market in Asia, with a capitalisation of around US$100 billion, is the second largest in the world after North America. REITs in Asia have delivered a cumulative total return of 47% since April 2006, against 8% globally.

Urbanisation and growing incomes of middle-class populations are major drivers of new property demand. Economies such as China, India, Indonesia and Vietnam will have huge demand in the coming years for housing, shopping malls and hotels, as well as commercial buildings, offices and hospitals.

APN said the demographic trend would add around 285 million people to major cities in Asia, resulting in demand for around 70 million houses.

One statistic of note is that the number of office-based workers in this region is low, at fewer than 10% of total jobs in most developing Asian cities. The number is forecast to rise to 15%. Thus, demand for office accommodation will increase as well.

Roy Melick, a partner with Baker & McKenzie in Sydney and head of its Asia Pacific Structured Real Estate Group, said that a return of global economic confidence, coupled with REITs sticking to the fundamentals, would ensure that they remain a viable choice for access to various real estate sectors. Confidence in the global economy is the major challenge for REITs in Asia Pacific.

However, REITs in this region are not very attractive because of the difficulty in obtaining development finance, he said.

Some newcomers such as Thailand and Vietnam are still in the process of amending rules to accommodate REIT markets.

Sorachon Boonsong, a partner with Baker & McKenzie in Bangkok, said Thailand was making the transition from conventional property funds to REITs, which offer much wider scope to investors as well as developers. The Securities and Exchange Commission (SEC) is expected to finalise REIT regulations in the third quarter of this year. However, tax treatment will depend on the Revenue Department.

He said the average tax collected from unitholders globally was around 10%. Capital gains from property funds in Thailand are not subject to tax, which is the strength of this asset class. So, if the government has to tax returns on REITs, the method chosen and rate should be considered carefully so that they are not less attractive than property funds.

“Thailand’s property market has many products such as office buildings, shopping malls and hotels. In my opinion, our products are behind just Hong Kong and Singapore. If the regulations are attractive enough, we will be able to draw money from foreign investors into the property market amid the crisis in Europe,” said Mr Sorachon.

Fred Burke, managing partner of Baker & McKenzie in Vietnam, said the Vietnamese government sees REITs mainly as a way to attract more funding to help build much-needed residential stock.

Under amendments to the Securities Law, REIT-like structures can be set up as joint-stock companies or as unincorporated funds. A draft decree spells out the legal and regulatory framework for each of them, but for the time being much will be decided on a case-by-case or discretionary basis.

As well, Mr Burke noted, there are longstanding issues with the underlying property investment market in Vietnam, including foreign ownership limits in listed companies, structuring constraints, and lack of supporting services such as property management companies, title searches and title insurance. There are only a few candidates with critical mass in terms of asset groups with sufficient cash flow to package into a REIT-like structure.

As in other economies, creating a tax structure that avoids double taxation for investors is a key, but in Vietnam there are also more general issues regarding investor protection, market access for property services, and the relative weakness of the judicial system to protect investors.

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