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June to herald the beginning of Thailand REITs
May 11, 2012
The SEC is negotiating with the Finance Ministry to ease tax and fee charges for property funds wishing to convert to a REIT structure.
The Securities and Exchange Commission (SEC) has allowed the creation of real estate investment trusts (REITs) in Thailand starting in June.
According toáthe Bangkok Post SEC deputy secretary-general Chalee Chantanayingyong saidáa number of existing property funds are expected to convert to REITs, due to more flexible investment rules than existing property fund structures.
Existing property funds are more narrowly focused, and generally are established to invest in a specific property. REITS are a corporate entity established to invest in property assets such as buildings, land or real estate-related securities.
Prakid Punyashthiti, an SEC assistant secretary-general, said REITs are also allowed to invest in overseas assets and may borrow up to 60 per cent of the cost of investment for an investment-grade asset, compared with the 10 per cent limit for property funds.
"Global investors are generally more familiar with REITs than property funds,” said Prakid. "In the US, some 90 per cent of these types of vehicles are established as REITs, as they can be larger and more flexible in management then property funds.”
And while a property fund is run by a fund manager, REITs have a structure similar to listed companies, including rules requiring the appointment of independent directors, annual general shareholders' meetings and disclosure regulations.
Currently there are 39 property funds registered in the market with assets as of December of THB 102 billion (US$3.27 billion). The SEC is negotiating with the Finance Ministry to ease tax and fee charges for property funds wishing to convert to a REIT structure.
Managers of a REIT must have paid-up capital of at least THB 10 million (US$321,340) and a solid financial position. Asset managers must also have at least three years experience and meet qualifications on work practices and operating systems.
Mr Prakid said establishing a REIT would require minimum capital of 500 million baht (US$16.06 million), with the entity listed on the Stock Exchange of Thailand. At least 75 per cent of capital must be invested at any time, and only up to 10 per cent of assets may be invested in incomplete projects.
The SEC also has rules on revenue structures for REITs, which Mr Chalee said should generally derive most of their core revenues from rents, not from returns on general business operations.