Will REITs shun SGX as tax exemption clause expires?

The future of REITs hangs in the balance.

Real estate investment trusts used to be the kings of mainboard listings, but REITs may soon relinquish the throne in light of the looming expiration of tax breaks in 2015.

SREITs are currently exempted from paying tax on foreign income, but this rule is set to expire on March 31, 2015. This enables REITs to grow their portfolios and invest in foreign properties in a tax efficient manner, especially in light of the tight property market at home.

According to Deloitte, Singapore remains the largest REIT market in Asia, outside Japan. A high proportion of foreign assets can be seen raising funds on SGX.

More than 67% of 2014 IPOs have foreign assets with key assets coming from Germany and Japan. Notable IPOs with foreign assets completed this year included Accordia Golf Trust (S$759 million) and iREIT Global (S$369 million) which emerged the first and third top fund raisers.

“In preceding years, REITs and Business Trusts were mainly dominated by industrial or commercial properties. We are starting to see unique asset properties like golf courses and cable TV getting listed here and from the good subscription, you can see that investors are excited about less-ordinary counters,” said Dr Ernest Kan, Deloitte Southeast Asia Leader for Global IFRS and Offerings Services.

There have been growing calls to extend the tax exemption for REITs. Yesterday, accounting firm PriceWaterhouseCoopers included a tax break extension in its 2015 Budget wishlist.

“The treatment applies to payments made, foreign-sourced income received in Singapore and expenses incurred on or before 31 March 2015 and not REITs that are constituted/listed before the expiry date. It makes planning by S-REIT managers difficult, unless the authorities announce a temporary extension in the interim,” noted PwC.