Thailand: Investing in real estate

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A new investment stream is set to pour into Thailand’s property sector with the upcoming release of real estate investment trusts (REITs), bringing the country into line with many of its regional neighbours. Details are still unclear, however, on when exactly investors will be able to take advantage of the new tool.

Nevertheless, analysts are anticipating a development surge in the market when REITs launch. Nukarn Suwanikul, associate director for investment at Colliers International Thailand, said she believes the introduction of REITs will be a game changer for the real estate sector.

“REITs will help stimulate the property market by creating an environment for continuous investment, thus raising the bar for the market in Thailand and signalling its entry onto the international stage as a more mature investment destination,” Nukarn told local media in late July. “Due to improved transparency and liquidity, REITs should create more confidence among both local and foreign funds and investors.”

Suttipan Kreemaha, the executive vice-president for property funds at ING Funds Thailand, agreed, saying that REITs will change developers’ investment outlook, as they will shift from just building and selling on projects to developing income-generating assets for long-term holding. “REITs should be considered a favourable vehicle for property investment. They’ll benefit not only unit holders but also the market as a whole,” Suttipan said in June.

However, it is still unclear exactly when investors will be able to take advantage of REITs, since regulations for the trusts have been in the process of being drafted for five years so far. It was in 2007 that the Securities and Exchange Commission (SEC) began to lay the groundwork for the fund-raising schemes, at a time when many of Thailand’s neighbours were seeking to unlock the asset potential held within their own property markets.

Though REITs were set to be launched at the beginning of June, there are still some procedural measures that have to be undertaken before the trusts become available as financing tools. On July 11, the Stock Exchange of Thailand (SET) issued a statement saying that a number of initiatives would be rolled out in the third quarter to boost attractiveness of the Thai stock market and facilitate fundraising for business. Among these would be rules to “support the listing of infrastructure funds and real estate investment trusts”.

As set out by the existing rules, those establishing REITs will be able to use trusts as investment vehicles and list trust certificates on the SET, granting them the ability to leverage debt of up to 50% of net asset value of the property or properties bundled together for the trust. Once the trust is set up, it must be listed on the SET within 60 days, with a minimum capital of at least $16m.

While REITs may be able to unlock value, some investors could be reluctant to turn the key if the government imposed an exorbitant level of taxation on earnings, some analysts have warned. According to Sorachon Boonsong, a partner at international law firm Baker & McKenzie, REITs may have to be made more attractive before they attract large-scale investment.

“The new property investment product may not be sexy among investors, particularly for foreigners who have a huge amount of capital to invest in Asia, if factors such as taxes collected by the Revenue Department and the land lease period fail to meet the expectations,” Sorachon told local media on July 18.

If tax rates on REIT earnings were set at around 10%, similar to those in other countries, and if the terms for land leases was extended beyond the current 30 years to anywhere between 70 and 90 years, there would be a greater incentive for investors, he said. “If the new REIT regulations can come onstream soon, while the government imposes taxes on profits gained from REITs at the same international standard, investment in Thailand’s REITs will be attractive enough to draw foreign institutional investors to Thailand,” said Sorachon.

While a number of developers and companies have indicated they would be interested in forming REITs to advance their own property portfolios, any such moves still await the drafting of the final details by the authorities, leaving willing investors waiting just a little bit longer.

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