Vunani Property Investment Fund receives REIT status
JSE-listed property company, Vunani Property Investment Fund ( VPIF) today announced that it had received Real Estate Investment Trust (“Reit”) status approval by the JSE Limited.
The REIT status will be effective from the start of the company’s financial year, the 1st of July 2013.
Vunani's portfolio comprises strategically located, high quality A-grade office buildings.
The fund has historically performed well in particularly tough trading conditions with annual compounded growth of 43% since listing.
The growth has been achieved with limited acquisitions but primarily through tight management and yield enhancing refurbishments. The fund now owns 28 buildings (excluding the propose acquisitions), with commercial offices comprising 93% of the VPIF Portfolio which is valued at R1,5 billion.
JSE's new Listing Requirements:
Bringing it in line with international standards, the JSE published new Listing Requirements on 28 March 2013 that will facilitate the South African Real Estate Investment Trust structure, or SA REIT (pronounced “essay reet”). National Treasury formally published REIT tax legislation for South Africa on 25 October 2012.
The SA REIT became a reality from 1 May 2013, after more than a six-year journey.
The SA REIT is one of the most flexible REIT regimes internationally and a significant development for South Africa’s publicly traded real estate sector.
Like existing listed property structures in South Africa, REITs own and operate income-producing commercial property and the SA REIT provides a simple, clear tax structure.
More than 25 countries in the world use a similar REIT model like the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK.
“Because the SA REIT dispensation provides many benefits, the foremost of which is tax certainty, it is likely that all qualifying South African listed property entities will make application to the JSE to become a REIT,” says Estienne De Klerk, Chairman of the SA REIT Association Committee and Executive Director of Growthpoint Properties.
“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,” says Patrycja Kula Business Development Manager at the JSE. “When South African listed property funds convert to this system South Africa will be the eighth largest REIT market.”
The listed property sector, spearheaded by the SA REIT Association, actively campaigned for the SA REIT structure to align it with global best practices. It worked closely with National Treasury, South African Revenue Services, the FSB, JSE and Association of Property Unit Trusts to achieve this goal. The aim was to provide simplicity, transparency, flexibility and tax certainty.
“The SA REIT achieves all these goals,” says De Klerk. “It is an internationally recognised structure. It is flexible enough to adapt to various models while encouraging best-of-breed practices and creating tax certainty.”
The SA REIT tax dispensation:
This new tax dispensation means a SA REIT can deduct all distributions paid to shareholders or linked unit holders as an expense. So, if a REIT pays all its distributable earnings to shareholders, it shouldn’t have to pay any tax. It becomes a conduit for net property rental income and provides investors an investment alike to direct ownership of the underlying property.
When a SA REIT sells a property for it doesn’t have to pay Capital Gains Tax (CGT) on any profit from the sale. Also, shareholders of an SA REIT won’t pay Securities Transfer Tax (STT) on buying or selling SA REIT shares.
South African investors will receive gross distributions from a SA REIT without the 15% dividends tax being levied against the distribution. But investors will have to pay tax on the distributions at their applicable marginal income tax rate when they include it in their taxable income. This also provides investors the opportunity to use debt effectively to fund the acquisition of their REIT investment on a pre-tax basis.
If invested in SA REITs as part of a RA or pension, provident and preservation fund, investors effectively pay no tax on dividends.
Foreign shareholders of SA REITs will be levied a dividend withholding post 1 January 2014 – the current rate is 15% or the applicable double tax agreement rate could apply.