South Africa’s largest listed property group Growthpoint, along with other players in the sector, is continuing discussions with the National Treasury Tax Policy Unit about introducing Real Estate Investment Trust (Reit) legislation in South Africa, executive director Estienne de Klerk said Thursday.
De Klerk, who is the chairperson of the Property Loan Stock Association, added that significant progress has been made on the proposed Reit regulations, as well as finding an appropriate regulatory framework and efficient Reit structure for South Africa.
Finance Minister Pravin Gordhan said in his 2012 Budget speech on Wednesday that the Treasury would bring the governance and tax treatment of property loan stock entities in line with the present treatment of regulated property unit trusts.
The Treasury explained that rental income from property loan stock entities would fall under the pass-through regime that applied to property unit trusts.
Property unit trusts and property stock loan companies typically provide a commitment to distribute a minimum of 90% of their rental income to investors. The distribution of rental income is effectively tax-neutral in the hands of the property trust. The Treasury said property loan stock companies appeared to achieve roughly the same result but without official sanction.
“They issue investors a dual-linked unit that consists of a debenture and a share with the distribution in the form of interest. The dual-linked structure needs to be eliminated so that other entities do not undertake the same structure to avoid tax by relying on excessive debt,” it stated.
De Klerk told Engineering News Online that the Reit legislation would rebrand property loan stock companies and property unit trusts so they would be recognised as Reit companies under the Tax Act.
“This means that these entities will be exempt from capital gains tax.
“The new South African Reit structure will yield many benefits such as offering tax certainty and efficiency relating to distributions, which will be recognised as rental from a taxation point of view, therefore their income will retain its major,” he said.
This followed the National Treasury’s announcement last year after the implementation of the Tax Amendment Bill in April of its intention to finalise the Reit legislation before 2013.
The bill raised the priority of Reit legislation.
Meanwhile, Growthpoint CEO Norbert Sasse stated at the company’s interim results presentation in Johannesburg that above-inflation increases in electricity, rates, taxes and other administrative costs remained a concern.
Sasse said that access to liquidity was expected to remain good with strong demand for the company’s corporate bonds and equity, as well as a willingness by, among others, all the major banks to provide debt facilities to Growthpoint.
The company also anticipated its V&A Waterfront property portfolio in Cape Town would deliver over 7% return on cost of developed properties in line with its due diligence forecast.
Further, he noted that the overall vacancy factor is unlikely to reduce much below the current 4%, with negative rent reversions in the office sector unlikely to change until such time as national office vacancies across all grades start to improve.
The company reported a 6.1% distribution growth to 67.8c a linked unit, which was in the upper end of the guidance previously given to the market.
The company also reported an increase in revenue to R2.68-billion from R2.23-billion in the previous corresponding period.