Real Estate Investment Trust: A Global Analysis

Citation

Ooi, J.T.L. (2007), "Real Estate Investment Trust: A Global Analysis", Journal of Property Investment & Finance, Vol. 25 No. 4, pp. 416-417. https://doi.org/10.1108/14635780710762553

Real estate investment trusts (REITs), which originated from the USA more than 50 years ago, have now been widely adopted in many countries across the Americas, Asia, Australia and Europe. As recounted by Steven A. Wechler, the President and Chief Executive Office of National Association of Real Estate Investment Trusts® (NAREIT) in the foreword to this book, REITs were created by the US Congress in 1960 to make investment in large‐scale, income producing real estate accessible to investors from all walks of life. Since then, the REIT sector in the USA has evolved through several revisions to the regulatory framework. The sector has also grown dramatically, from 53 in 1974 to about 200 publicly traded REITs as of 2006 with a total market capitalization of US$ 380 billion. Since 2001, REITs have been included in the Standard & Poor's (S&P) 500 Index, which is due recognition of the importance of REITs and the real estate sector in the public capital markets. REITs have also spread its wings across the continents of Europe and Asia, offering new opportunities for international funds to diversify into foreign real estate assets without worrying about liqudity and the need to manage the local properties. European countries which have adopted the REIT concept include Belgium, France, Germany and The Netherlands. In Asia, REIT markets have been successfully established in Japan, Singapore, South Korea, Taiwan, Hong Kong, Malaysia and Thailand.

There are a number of obstacles to overcome before REIT could be implemented successfully in a new market. The main hurdle, of course, would be getting the critical support from the governing authority. The formulation of a legislative framework generally involves a lengthy process of lobbying, consultation and deliberation between the different stakeholders in the real estate industry. Traditionally, REITs were viewed cautiously by governing authorities who are concerned that the vehicle may be used to bail out owners of distressed properties at the expense of the unsophisticated investors. Some authorities, who are protective and nationalistic may worry about control and ownership of local real estate by foreigners. Due to concerns over potential loss of tax revenue, most governments would need to be persuaded on why REITs should be granted special tax considerations (Ooi et al., 2006).

Consequently, it is not surprising that the legal and tax regimes for REIT differ from one country to another. Real Estate Investment Trusts: A Global Analysis cover the rules and regulations governing REITs and their tax treatment in 12 jurisdictions, namely Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Malaysia, The Netherlands, Singapore, UK, and USA. Each of the countries, arranged in alphabetical order, is covered in a separate chapter written by specialists in the field. Each chapter adopts the same format, covering key concepts such as tax, investor limitations, distribution requirements, gearing, treatment of offshore investors and related issues to facilitate ease of reference. Edited by Rachel Booth, a solicitor at Macfarlanes, the book contains two forewords by Liz Peace, Chief Executive of British Property Federation and Steven A Wechler, President and CEO of NAREIT.

The book is written by legal and tax experts for a similar target audience. Nevertheless, I find the materials useful to help me appreciate the rules and regulations relevant to REIT in the specific countries. Thus, the book will serve as a useful reference for practitioners who need to know the legal and tax issues applicable in the different jurisdictions. However, I suspect that the rules and regulations governing REITs will get outdated very quickly as they are constantly evolving over time. For example, over the last few years, the rules governing property funds in Singapore have been amended several times.

Instead of merely presenting the rules country by country, I would have liked to have seen a synthesis of the rules and regulations across different countries. It would be helpful if the rules could be tabulated in a table to facilitate comparisons across the different regimes. This coupled with a discussion on the strengths, weaknesses and areas for improvements as well as explicit evaluation on which countries have the most progressive legislative framework would be interesting and valuable to the readers. As the REIT regulatory framework continues to evolve over time it is expected that the REIT regimes will converge towards a more open and less restrictive framework as competition for international capital flows intensifies.