Two types of property vehicles are currently in existence in South Africa; Collective Investment Schemes in Property and Property Loan Stock Companies.

National Treasury is reviewing the position in South Africa and has issued a discussion paper, which they proposed the implementation of Real Estate Investment Trusts (REIT).

The proposed changes are driven by the following perceived shortcomings:

The objective is to offer an internationally recognised REIT product that US investors are familiar with.
National Treasury is attempting to ensure regulation, which promotes maximum protection to investors and safeguards the reputation of the industry, whilst allowing for enough flexibility for REITs to provide maximum returns for investors.

The South African REIT would be housed under the Collective Investment Schemes Control Act (No. 45 of 2002) and would require a legal seat and place of management to be in South Africa. A South African REIT will be a public company or trust listed on a South African licensed exchange in order to promote a higher level of fund governance through increased transparency, and to ensure daily pricing for retail investors.

These REITs will be subject to income and asset rules, distribution rules, gearing limits, investor protection and black economic empowerment regulations. They will be accompanied by a new income tax dispensation contained in a separate schedule to the Income Tax Act.

We anticipate that the taxation of REITs will be in line with international norms, allowing South African REITs to compete internationally and increase returns for investors. Consequently, we expect the introduction of a simple and uniform tax dispensation that will allow for one level of tax.

Draft legislation and a draft Generic Founding Document are scheduled for release in December 2008.

Julian van der Westhuizen,
Cape Town, South Africa
julianV@ctn.moorestephens.co.za