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Sri Lanka SEC urges real estate securities with rules in place

RIEIT RULES: Chinthaka Mendis DG SEC, Viraj Dayaratne Chairman SEC, Dumith Fernando Chairman CSE

ECONOMYNEXT – The Securities and Exchange Commission of Sri Lanka said rules are now in place for the issue of Real Estate Investment Trusts (REIT), where people can contribute for property projects and get returns and investors to raise funds.

The rules which were published on the government gazette on July 31, 2020 are an extension to the Unit Trust Code.

“These Rules which are comprehensive, will govern the setting up of and the conduct of a Sri Lankan REIT,” the SEC said in a statement.

“Specific provisions have been included for the verification of title and valuation of property that will form part of the assets of the REIT.”

REITs will have to distribute 90 percent of their income to the beneficiary holders and it will be tax pass through instrument.

REITs as a legal trust were originally developed in the US with 100 percent distribution under normal law, and were not a taxable entity separate from the beneficiaries, analysts say, unlike a limited company engaging property development.

Publicly traded REITs which have greater liquidity, are regulated by the SEC.

“Many real estate owners/developers can immediately benefit from the Unit Trust based REITs framework, which is now enabled under the capital market framework of the SEC,” the regulator said.

“In order to promote transparency and to distribute ownership among people of Sri Lanka, REITs are only allowed as listed REITs on the Colombo Stock Exchange,” the SEC said.

REITS allow an investor to take part in a commercial property project such as a office complex and get rents as dividends and sell them for capital gains without having to actually develop a property or raise enough to money to buy a property.





However depending whether there is an external manager who charges fees or not, the returns may change. High management fees are a problem in the US, especially in over-the-counter REITs, analysts say.

Sri Lanka’s SEC said REITs will give higher dividend and relative stable income through long leases and there will be investor protection with regulation.

Since they can be traded, persons can exit like a share. (Colombo/Aug02/2020)

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