Sri Lanka needs reforms for REITs to work
ECONOMYNEXT – Real Estate Investment Trusts (REITs) can help to drive growth, job creation and foreign investment in Sri Lanka but reforms are needed for them to work, real estate consultancy Jones Lang La Salle said.
“In Sri Lanka, the potential benefits to the domestic economy from the introduction of REITs are significant,” they said. “Their introduction will likely signal stronger economic growth and job creation”
Moreover, Jones Lang La Salle said REITs provide a platform for much needed foreign direct investment in Sri Lanka without transferring the ownership of the real estate asset to the foreign investor.
“Given the current regulations around foreign ownership, we believe that REITs are one of the most viable mechanisms for attracting investment into Sri Lanka’s commercial real estate sector,” JLL observed.
However, JLL noted that prior to the introduction of REITs to the domestic market, significant reforms would be necessary in relation to Sri Lanka’s legal and regulatory frameworks.
This was to ensure “sufficiently robust safeguards and procedural mechanisms” to enable a secure foundation for REITs to flourish.
“Establishing REITs in a new market depends heavily upon support from local regulatory bodies and authorities including the implementation of a Unit Trust Code, but there also needs to be an efficient and stable tax regime in place to instill confidence in investors,” the company said in a statement.
In addition to transparent taxation policies, that are required to be applied in an equitable fashion, there is a need for certain limited tax concessions to stimulate yields and make REITs more attractive, JLL stated.
JLL cited the example of stamp duty as one area where concessions could be applied.
“Several studies have shown that the socio economic benefits provided by REITS outweigh any losses in tax revenue, and supportive policies, along with international standards of corporate governance are essential to entice foreign investors who are, in turn, the lifeblood to the longer term prosperity of REITs in the country,” it noted.
Current restrictions on foreigners owning land in Sri Lanka have been a significant hurdle to foreign capital inflows in Sri Lanka.
But JLL noted that if regulations were enacted to help mitigate these challenges while still ensuring that the title of a given property is not directly transferred to a foreign investor, then a significant obstacle to the establishment of REITs in Sri Lanka would have been cleared.
(COLOMBO, Sept 16, 2017)