Singapore Urged To Attract More Cross-Border REITS

by Mary Swire, Tax-News.com, Hong Kong

30 June 2005

Singapore must do more to attract real estate investment trusts (REITS) to list in the city, according to industry experts.

At a forum in the city on Monday, Singapore was urged to take advantage of its favourable tax structure and low capital raising costs by marketing itself in countries where REIT legislation is not in place.

"Look at India, China, Philippines and Indonesia, none of them has REIT codes at the moment and none likely to have REIT codes in the foreseeable future. That puts Singapore and Hong Kong in a well-placed position, as recipients of real estate from those markets," observed Michael Smith, Executive Director and Head of Real Estate, Asia Investment Banking at UBS.

"So even though Singapore has got a finite quantum of real estate, it can actually leverage its position as a REIT centre by encouraging cross-border REIT activity. There is potential for a huge number of REITs with very large size," he added.

"There is still a lot of real estate that has not been acquired by REITs. And the more the regulator encourages REITs and that REITs are the most tax effective way to own real estate, the more likely that real estate will continue to flow into REITs."

Real estate investment trusts (REITs) are companies that own and most often actively manage income-generating commercial real estate and most are publicly traded.

In most countries where REITS are traded, the majority of a firm's income is passed onto investors without taxation at the corporate level. In Singapore, REIT dividends are tax-free provided more than 90% of the firm's income is distributed to investors. All five of the city's listed REITS have chosen to do this.

While property prices in Singapore have struggled to recover from the Asian financial crisis of 1997/1998, investors in real estate investment trusts (REITS) listed on the city-state's stock exchange have enjoyed good returns since the vehicles were introduced three years ago.

Investors who bought into the CapitalMall REIT when it was listed in 2002 would have earned a 100% return on their investment, based on the appreciation of its stock-price. The company's dividends also yield a healthy 4.3%.

In an attempt to boost the local REIT market, Singapore's Prime Minister and Minister of Finance, Lee Hsien Loong announced in the 2005 Budget that foreign non-individual investors would be encouraged to invest in the country's property market with a proposed reduction in the withholding tax on REIT distributions to 10% from 20%, for a period of five years.

Additionally, to attract more REIT listings, the government stamp duty will be waived on the instruments of transfer of Singapore properties into REITs to be listed, or already listed on the SGX, for a five-year period.

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