• 4% stamp duty, lower rental yields discourage potential investors 

Real Estate Investment Trusts (REITs) have been made redundant due to concerns over expenditure related to stamp duty when transferring the assets, with no REIT created to date despite its introduction more than 16 months ago. 

Speaking to The Sunday Morning Business, former Chairman of the Securities and Exchange Commission (SEC) Viraj Dayaratne revealed that the 4% stamp duty imposed by Local Governments when transferring real estate to the REIT had proved to be a barrier, as real estate developers felt it was not profitable to incur such an expenditure. 

Requests had been made that the Government or the respective provincial councils waive the stamp duty relating to such transfers.

Addressing the possibility of whether the Government would do so, he stated: “This is a policy decision to be made by the Government. However, I don’t think it is in favour of waiving the stamp duty at present. This stamp duty was considered when we finalised the REIT framework. My personal view, which I insisted on, is that this is just another expense when establishing a REIT and they should not ask for a waiver. It is similar to the other expenses incurred in running a REIT. It is just another cost you must factor in when considering whether a REIT is something you wish to invest in.”

Explaining further, he said that this stamp duty would be charged when a real estate asset was transferred to the REIT, similar to when a property was transferred between two individuals.

Meanwhile, speaking to The Sunday Morning Business, Colombo Stock Exchange Head of Marketing Niroshan Wijesundera confirmed that no REIT had been created to date due to these concerns regarding stamp duty.

Similarly, CSE Chief Executive Officer Rajeeva Bandaranaike confirmed that the stamp duty cost, together with the low real estate rental yields of 5%, had rendered REITs redundant and that the Government had stated that there would be no stamp duty waiver.

The REIT framework was introduced in September 2020 by the Colombo Stock Exchange (CSE) and the SEC, enabling the creation of REITs, which provide real estate developers and owners an opportunity to transfer income-generating and fully-completed properties to a REIT. 

The company transferring the property to a REIT will receive funds from the public by issuing units of the REIT. This process and the REIT at large will be created and managed by a managing company licensed by the SEC.

REITs provide average investors the opportunity to reap the benefits of a real estate investment and the advantages associated with investing in publicly traded securities on the CSE.