Investing in real estate a growing priority for many, investment experts say
The desire to invest or own real estate is generally very high amongst many people was the view of a global and regional capital markets expert.
Naushervan Beg, CEO Entrust Capital Markets & Entrust Wealth Management, Sri Lanka made the above comment when he spoke on ‘Raising Capital & Channeling Savings into the Real Estate Sector’ at a workshop on ‘Creating the Real Estate Infrastructure to Spu Economic Growth” in Colombo last week.
Mr. Beg primarily spoke on an instrument called ‘REIT – Real Estate Investment Trust’ which is being created through the Budget 2016. This instrument was first established in the United States in 1960 and was adopted in India last year it was revealed. He said that the real estate sector is amongst one of the key drivers for many economies and constitutes an important contributor to national GDPs.Suresh Perera, Principal Tax & Regulatory, KPMG who made a presentation on ‘Investing in Real Estate – Tax Perspective’, said the REIT is a mechanism for small scale investors to do real estate business and through this instrument small scale investors could also be part owners of large real estate.
Mr. Beg, mainly touching on REIT, said that modest income levels coupled with high inflation makes it very challenging for most people to achieve the desired objective of owning real estate. Investments in real estate, he asserted, mandate large financial commitments and can create liquid exposures and lack of transparency and governance and the required high costs of due diligence, he pointed out.Technical knowhow and sophistication is required, he said for real estate development, post development and property management. Mr. Beg said that these issues in turn limit this sector from reaching its true potential as the sector remains deprived of a flow from potential investors/capital.
He indicated that REIT is an internationally recognized mechanism to channel investments into the real estate sector and is a trust that buys develops, manages and sells real estate assets. He said that REIT is similar to Collective Investment Schemes or Trusts.He said REITs can be tied to almost all aspects of the economy, including hospitality and tourism; health care and nursing homes; industrial, commercial and retail facilities; educational facilities, warehousing and transportation infrastructures such as airports, harbours etc.In pointing out that REITs also benefits the tax authority, he said that tax authorities are normally concerned that they will lose tax revenue as REITs demand fair tax treatment as pass through entities and also at the various stages of an REIT’s life cycle.
However, he indicated that favourable tax treatment of the REIT level does not create a net loss in tax revenue, rather just makes REITs competitive with direct property investments.Consequent to these two presentations a live panel discussion ensued with Mr. Perera; Mr. Beg; Ravi Abeysuriya – Group Director/CEO, Candor Equities; Ishrat Rauff, Group MD/CEO, Adi Capital Ltd; Yasir Maqbool, Regional Head Risk – Maldives & Sri Lanka, Habib Bank Ltd and Mafaz Isaq, CEO, Premier Synthetic Leathers Manufacturers and Director, Calamander Capital, Singapore.