Australia

REIT legislation established: 1971, Australian REITs
Regulating body: Australian Securities and Investment Commission
Number of listed companies: 60
State of current market: Australia boasts one of the most mature listed real estate industries in the world, with 80 percent of investment grade property securitized.

Australian REITs can hold either domestic or international property assets. Outside of Australia, the main countries in which Australian REITs hold assets are the United States, New Zealand and the United Kingdom. Also, Australian REITs may operate as stand-alone trusts or stapled, internally managed companies, with stand-alone trusts providing investors pure exposure to the underlying real estate portfolio.

Legislation for Australian REITs dictates that they must distribute 100 percent of their income back to the unit holders. Additionally, Australian REITs have no borrowing limits and are tax-exempt at the trust level, with distributions subject to income tax at the unit holder level. The annual distribution requirement for Australian REITs is to distribute taxable income to unit holders.

Legislative Actions: In September 2007, the Australian Parliament approved tax law changes that allow managers to restructure to create an active business subsidary. Additionally, all foreign sourced income may flow through to security holders untaxed, including from a taxable REIT subsidiary, making it easier for Australian REITs to invest offshore.

Hong Kong

REIT legislation established: 2003
Regulating body: Hong Kong Securities and Futures Commission
Number of listed companies: 7
State of current market: With four years under its belt, the Hong Kong REIT market is gaining momentum. Going forward, REITs will provide liquidity to foreign investors who want to invest in China’s expanding property markets.

Hong Kong regulations on REITs restrict active trading of real estate. Additionally, not less than 90 percent of audited annual net income after tax must be distributed to shareholders as dividends, and any related party transactions are subject to shareholder approval. Investment limitations state that REITs shall only invest in real estate that is generally income-generating. However, a REIT may acquire uncompleted units in a building which is unoccupied and non-income producing, or in the course of substantial development, redevelopment or refurbishment.

Share prices of all but one are significantly below IPO price. Hong Kong issuers’ use of interest rate swaps to improve initial yields has also been cited as having deterred investors’ interest.

India

REIT-like legislation established: None
Regulating Body: None
Number of listed companies: None
State of current market: India’s real estate market represents tremendous opportunity for local developers and foreign investors alike. Yet, Indian developers require substantial new capital investment, including foreign investment.

To attract more global capital, India’s government has been relaxing restrictions on foreign direct investment (FDI) in a number of industries such as hospitality, technology and mixed-use development.

Some international investors may elect to invest directly in Indian real estate or real estate investment funds started by a number of India’s financial institutions.

Legislative Actions: India is currently in the process of formulating legislation for the introduction and smooth functioning of REITs. The government and Securities and Exchange Board of India (SEBI) are also in the process of easing regulation on foreign direct investment in Indian real estate.

Japan

REIT legislation established: 2000
Regulating body: Financial Services Agency
Number of listed companies: 40
State of current market: Japanese REITs are externally managed, special purpose investment entities with no employees, limited business scope and pronounced leverage ceilings. They may be structured as an independent corporation or as a contractual relationship through a trust bank. Additionally, they are allowed only to invest in properties and cannot conduct development businesses. J-REITs are becoming increasingly diversified. There are now REITs investing in office buildings, residential properties, retail properties and warehouses. Soon, there will be a REIT investing in hotels.
Legislative Actions: The Japanese government is currently evaluating legislation allowing J-REITs to invest overseas, which could enable them to grow their portfolios more rapidly through the acquisition of properties
in potentially higher yielding markets.

Malaysia By Allen Kenney

REIT-like legislation established: 2005
Regulating body: Securities Commission
Number of listed companies: 11
State of current market: Existing M-REITs are small, and the total market cap is only approximately $1.4 billion. The market has performed very well over the last 12 months, and new developments have foreign (Singapore) property companies buying stakes in Malaysian REITs.
Legislative Actions: There is a draft paper proposing certain amendments to the Property Fund Guidelines.

Pakistan By Allen Kenney

REIT-like legislation established: None
Regulating Body: None
Number of listed companies: None
State of current market: Pakistan stands on the cusp of becoming the latest country in Central Asia to bring REITs to its market.

The Securities and Exchange Commission of Pakistan, which would be responsible for overseeing the REIT industry, released a draft of proposed regulations in July. The rules are expected to be finalized and go into effect in mid-September.

Legislative Actions: The proposed rules mirror those of many REIT regimes around the globe. Managers would be required to distribute at least 90 percent of the trust’s income as dividends to shareholders in each financial year.

Additionally, the REIT would have to be held by at least 100 individual investors, and more than 50 percent of theshares could not be held by fewer than six people. Also, a REIT’s minimum fund size would be an equivalent of $100 million.

Karachi-based House Building Finance Corporation Ltd. (HBFC), a state-created financial institution, has already prepared all the necessary documentation and hopes to establish Pakistan’s first REIT as soon as the final regulations are released.

Singapore By Allen Kenney

REIT legislation established: 2002
Regulating body: Monetary Authority of Singapore (MAS)
Number of listed companies: 8
State of current market: The stellar returns of 2007 appear to have whetted investors’ appetites for more Singapore REITs. Fund managers have announced more than 15 new REITs in the pipeline. The bubbling interest is not
limited to domestic real estate, however, as a strong trend toward listing REITs with assets outside of the country—holdings located in Singapore’s regional neighbors such as China, India and Indonesia—has developed.
Legislative Actions: Recently, MAS released a series of proposals intended to bolster REIT regulation. The measures include tighter disclosure requirements with regard to short-term financial engineering in the build up to an initial public offering. MAS is also floating the idea of doing away with the 5 percent single-party limit in conjunction with a recent announcement that takeover laws will now apply to REITs. Other changes may include anti-entrenchment rules that disallow or qualify long-term REIT management contracts and high termination fees.

South Korea By Allen Kenney

REIT legislation established: 2001, Korea REITs (K-REITs) and Corporate
Restructuring REITs (CR-REITs)
Regulating body: Financial Supervisory Commission
Number of listed companies: 8
State of current market: Industry members have taken to lobbying Korea’s ministry of construction and transportation, which holds regulatory authority over the country’s REITs, for new rules intended to expand the REIT market. New legislation is expected in the near future.

Currently, two types of REITs exist in Korea. A dividend payout of at least 90 percent of disposable earnings triggers a tax deduction for CR-REITs. K-REITs, on the other hand, are not eligible for the deduction and are taxed at a rate of nearly 30 percent. Korea’s organizational REIT rules seem to be intended to limit investors’ ability to consolidate control of the trust.

Korea’s REIT rules regarding income and assets also contain specific thresholds. At the end of each quarter, actual real estate must comprise a minimum of 70 percent of a Korean REIT’s assets. Another 10 percent of the assets are required to be securities and cash related to real estate.

Taiwan By Allen Kenney

REIT legislation established: 2003
Regulating body: Bureau of Monetary Affairs
Number of listed companies: 8
State of current market: Following a hot start in a booming real estate market, Taiwan’s REIT market has stabilized recently. Eight REITs have cropped up in the market since Taiwan passed its first REIT authorizing legislation in mid-2003, which granted regulatory authority over the market to Taiwan’s ministry of finance.
Sources of REIT income in Taiwan can include: land, real estate with a constant revenue stream, rights derived from land with stable revenue and certificates or asset-backed securities issued or delivered by trustee institutions or certain special purpose companies. REITs are precluded from investing more than 10 percent of their net worth in short-term commercial paper.

Investment in Taiwanese REITs has been restrained as commercial rents have failed to keep pace with an expanding real estate market. Lower yields have caused owners to sell property outright on the open market.