REITs prospective drivers of growth, employment opportunity and FDI inflow
Jones Lang LaSalle (JLL), a global real estate services firm has said that the rules and regulations regarding Real Estate Investment Trusts (REITs) in Sri Lanka needed to be reassessed in order for them to be presented to the country.
“In a global context, REITs have become an integral part of the investment landscape, accepted by individual and institutional investors, alike, as providing greater access to commercial real estate projects. In Sri Lanka too, the potential benefits to the domestic economy from the introduction of REITs are significant,” JLL said.
“Their introduction will likely signal stronger economic growth and job creation, but, moreover, REITs provide a platform for much needed foreign direct investment in Sri Lanka without transferring the ownership of the real estate asset to the foreign investor. Given the current regulations around foreign ownership, we believe that REITs are one of the most viable mechanisms for attracting investment into Sri Lanka’s commercial real estate sector.” the company stated.
But, JLL added that Sri Lanka first needed to reanalyse its legal and regulatory mechanisms to guarantee the protection and bureaucratic apparatus that would facilitate the function of REITs before they were introduced to the country.
“Establishing REITs in a new market depends heavily upon support from local regulatory bodies and authorities including the implementation of a Unit Trust Code, but there also needs to be an efficient and stable tax regime in place to instil confidence in investors. In addition to transparent taxation policies, that are required to be applied in an equitable fashion, there is a need for certain limited tax concessions to stimulate yields and make REITs more attractive,” it said.
Many researchers have proved that socio economic advantages afforded by REITS compensate for any shortfalls in tax revenue, and accommodating policies, coupled with international specifications of corporate governance are imperative to attract foreign investments that are essential for long-term success of REITs in Sri Lanka.
Foreign capital to Sri Lanka had been severely impeded by the country’s present stance on property ownership by non- Sri Lankans, but JLL says that if the government were to introduce legislations that would help overcome this barrier, at the same time ensuring that foreigners will not be able to claim title to property, then one of the main drawbacks to introducing REITs to the country will be overcome.
REITs were initially set up in 1960 in the US and are generally viewed as instruments of investment that democratise owning of property.
Introducing legislative reforms to allow REITs to be introduced to Sri Lanka will act as a positive indicator to foreign investors who may find the property restrictions imposed on non-Sri Lankans as too risky.
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