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SEC to introduce REITs by August

09 Jul 2020

By Charindra Chandrasena The Securities and Exchange Commission of Sri Lanka (SEC SL) is hoping to introduce Real Estate Investment Trusts (REITs) to Sri Lanka, possibly even as early as August 2020, according to Chairman Viraj Dayaratne PC. “We are hoping to launch REITs in August, and we are confident, if there are no unexpected delays, that we will be able to launch in August,” Dayaratne told The Morning yesterday (8). The matter was taken up at the SEC Commission meeting held last evening, where it was decided that some aspects of REITs need to be carefully evaluated before its introduction. “The real estate industry and land transactions are riddled with corruption in Sri Lanka, particularly in terms of title. Therefore, we are keen to ensure that there is a strong regulatory and legal framework to prevent these types of transactions. The ultimate objective of this is to safeguard the interests of the investors,” he said. According to the US Securities and Exchange Commission, a REIT is a company that owns and typically operates income-producing real estate or related assets, which may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.  Unlike other real estate companies, a REIT does not develop real estate properties to resell them and instead buys and develops properties primarily to operate them as part of its own investment portfolio. REITs are an attractive investment proposition as they provide a way for individual investors to invest in large-scale, income-producing real estate, without requiring them to go out and buy such real estate. They would also provide a platform for much-needed foreign direct investment to Sri Lanka as it would not require the ownership of the real estate asset to be transferred to the foreign investor. The SEC believes the low interest rate regime in place at present has created a conducive environment for REITs, as investors are looking for alternative investment options. While REITs have been contemplated by the SEC at various stages over the years, with even the process of launching them being initiated, they are yet to be introduced due to a mix of regulatory and legal complications, tax issues and bureaucratic delays. One of the main barriers to the introduction of REITs is believed to be the issue of whether stamp duty could be exempted when a land is transferred to a REIT. Furthermore, the earnings of investors would ideally need to be tax exempted to incentivise investment, at least in the initial phase. However, with government revenue having plummeted following the tax cuts introduced late last year and the stifling of Sri Lanka's revenue generating industries due to Covid-19, it remains to be seen whether the government would be in a position to offer such tax exemptions to boost REITs.

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