Property loan stock "elimination"
Property loan stock "elimination"
SA listed property will become more like REITs overseas.
Wednesday’s Budget contained a passage that announced the impending elimination of one of the most popular types of listed investment: the property loan stock. Most listed property counters, including the two largest, Growthpoint and Redefine, come in the form of a linked unit. They are part share, part debenture.
The structure is done for tax reasons, so that the companies can pay rental income to investors in the form of interest on debentures.
But the Treasury said that this “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.
What does it mean for the sector? Growthpoint director, Estienne de Klerk says his company has been working with Treasury to implement new listed-property legislation.
The result will have two main benefits.
The first will be greater tax certainty. De Klerk explains that there are currently tax “anomalies” in both types of listed property: property loan stocks (PLSs) and property unit trusts (PUT). For example, property loan stocks are subject to capital gains tax, while property unit trusts aren’t.
Another benefit will be a listed structure that more closely resembles the overseas norm, namely the real estate investment trust (Reit).
De Klerk hopes that the changes will increase foreign ownership of listed property. He says that Growthpoint and Redefine have the highest levels of foreign ownership but this is lower than 15% for each company. He thinks foreigners may be put off by what appears to them to be an unusual structure.
De Klerk says that PLSs and PUTs are likely to retain their respective company and trust statuses. In other words, Growthpoint, a loan stock, will remain a company regulated under the Companies Act. And property unit trusts will remain trusts regulated under the Collective Investment Schemes Control Act.
One possible way of eliminating the dual-linked structure of PLSs could be to issue new shares to investors in lieu of their debentures.
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SA listed property will become more like REITs overseas.
Wednesday’s Budget contained a passage that announced the impending elimination of one of the most popular types of listed investment: the property loan stock. Most listed property counters, including the two largest, Growthpoint and Redefine, come in the form of a linked unit. They are part share, part debenture.
The structure is done for tax reasons, so that the companies can pay rental income to investors in the form of interest on debentures.
But the Treasury said that this “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.
What does it mean for the sector? Growthpoint director, Estienne de Klerk says his company has been working with Treasury to implement new listed-property legislation.
The result will have two main benefits.
The first will be greater tax certainty. De Klerk explains that there are currently tax “anomalies” in both types of listed property: property loan stocks (PLSs) and property unit trusts (PUT). For example, property loan stocks are subject to capital gains tax, while property unit trusts aren’t.
Another benefit will be a listed structure that more closely resembles the overseas norm, namely the real estate investment trust (Reit).
De Klerk hopes that the changes will increase foreign ownership of listed property. He says that Growthpoint and Redefine have the highest levels of foreign ownership but this is lower than 15% for each company. He thinks foreigners may be put off by what appears to them to be an unusual structure.
De Klerk says that PLSs and PUTs are likely to retain their respective company and trust statuses. In other words, Growthpoint, a loan stock, will remain a company regulated under the Companies Act. And property unit trusts will remain trusts regulated under the Collective Investment Schemes Control Act.
One possible way of eliminating the dual-linked structure of PLSs could be to issue new shares to investors in lieu of their debentures.
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yes you are right the tax is the biggest reason for this
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