HA NOI (VNS) — Real Estate Investment Trusts (REIT) have been officially permitted in Viet Nam since September 2012, but no such funds have been launched due to tight restrictions. The State Securities Commission (SSC) has suggested easing regulations in the hopes of developing this investment tool.
REITs are a popular investment in developed countries. By purchasing REIT fund certificates, investors can invest in real estate assets without having to buy property.
As REITs receive special tax considerations, they typically offer high yields and a steady income stream with revenue coming principally from rent on the properties concerned.
The funds were expected to provide a new channel to raise funds for the real estate market and help reduce real estate-related bad debts in banks.
However, current regulations do not allow real estate companies or property owners to contribute property to the funds. The rules also prohibit the funds from borrowing more than 5 per cent of its net asset value after its establishment.
Fundraising in recent years has hovered around VND50-100 billion (US$2.3-4.7 million), much lower than the real value of properties. The lack of capital further impedes funds from seeking investment opportunities. Moreover, unlike laws in other countries, the law includes no preferential tax policies for real estate funds, such as tax exemptions.
Property prices in big cities remain high while rents of office and retail centres will likely continue their downward trend. This not only negatively affects profits of the leasing segment, but also makes financial institutions and real estate companies and investors less interested in REITs.
In an effort to promote REITs, the SSC's Fund Management Department said the commission had plans to change Circular 228, which guides the establishment and management of real estate investment trusts, this year. Contribution of property to REITs would likely be allowed.
To do this, sponsors must register to contribute property that they own, such as shopping malls, apartments or hotels, to the real estate fund management company. Then the property must be approved by the fund manager and its value and business prospects must be evaluated. Finally the property must be issued a valuation certificate and published in the prospectus of the fund.
Assets of the fund are separate from the assets of the fund management company. Ownership of contributed property will be transferred to the real estate fund and sponsors will receive cash or fund certificates for their contribution. The fund manager will register listing and trading of fund certificates on the stock market. In addition, the authority will also consider introducing the accounting method and preferential tax policies for real estate funds in line with international practice. — VNS