A Real Estate Investment Trust (REIT) is an internationally recognised investment structure geared for listed companies that own and manage rental properties. The main aim of REITs is to provide certainty with a property investment through a simple and clear tax structure. The structure is also globally standardised: currently, more than 25 countries in the world use similar REIT models.
REITs have many advantages for listed companies and investors - both local and abroad. Some of the more significant benefits include:
1. Benefits to the Listed Sector
2. Benefits to Local Investors
- South African REITs can deduct all distributions paid to shareholders as an expense. If REITs pay out all distributable earnings to shareholders, the REIT will not incur tax.
- South African REITs do not pay transfer duties or capital gains tax on the profits accrued from the sale of a property.
3. Benefits to International Investors
- Shareholders of a REIT do not pay Securities Transfer Tax (STT) on buying or selling REIT shares.
- Investors receive gross distributions from a REIT without incurring the 15% dividend tax levied against the distribution.
- REITs allow for net property rental income and provide investors an investment alike to direct ownership of the underlying property. This happens if REITs deduct distributions paid to shareholders as an expense, which therefore means that the REIT pays all of its distributable earnings.
- Because similar versions of the REIT model are used throughout the world, foreign investors understand and have confidence in the REIT model. This confidence makes South African REITs a transparent and attractive opportunity to international investors.