By Shabiya Ali Ahlam
The new Securities and Exchange Commission (SEC) Bill, which is expected to be enacted by end-2016, will provide the necessary legislation to introduce real estate investment trusts (REITs), according to the capital market regulator.
“A number of areas would have to be looked into before implementing REITs and for that, change in the current system is necessary.
From the regulator point of view, we are bringing in certain amendments and we are doing this in an accelerated manner,” SEC Chairman Thilak Karunaratne told Mirror Business.
A REIT is a type of security that invests in real estate through property or mortgages and often trades like a stock. REITs provide an opportunity to even small investors with an extremely liquid stake in real estate.
Sri Lanka’s capital market participants yesterday stressed the significance of putting in place the necessary regulations before the introduction of REITs into the market in order to safeguard the investors.
Budget 2016 proposed to introduce REITs with the objective of infusing much required capital to the real estate and infrastructure development and also to provide an avenue for the small investors to benefit from the development in the sector.
It was also proposed to exempt the income received by the REIT holders from stamp duty.
Meanwhile, Colombo Stock Brokers’ Association (CSBA) President Ravi Abeysuriya asserted that while the SEC has much to do in getting REITs implemented, it is essential to have the regulatory aspects in place.
“It takes a lot of effort and time to get it done right. If we make this available without a proper regulation in place then investors may get burnt and would blame REITs for not being an attractive instrument,” he warned.
Sharing similar sentiments, JB Securities Managing Director Murtaza Jafferjee emphasised it is essential for the industry to actively work together to further iron out unresolved issues revolving around the option.
“The Budget has been in the right direction for REITs but the industry will have to work towards resolving some of the issues to push this instrument.
It is imperative for the industry, together with the treasury and the regulator to further develop the unit trust code and create an enabling environment to facilitate REITs,” expressed Jafferjee.
According to him, concerns are mainly in the areas of valuation, stamp duties and foreign ownership, all of which were highlighted in Budget 2016, but imprecise.
Noting the process of valuation for REITs is unclear, he asserted without a proper mechanism in place, it would be difficult to push the instrument as there is no ready market for the same as yet.