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Tuesday, 28 June 2011 03:36

Many people don't think very much of Thai REITs, if for no other reason that Mark 1 REIT legislation in all countries tends to be deficient in one way or another, and in Thailand REITs they have been largely designed to deal with the Asian Financial Crisis’ non-performing real estate loans, and so are “closed” and typically only deal with one or two properties (often leaseholds).

Foreigners- No Thai taxes are imposed on foreign individual unit holders on income or Capital Gains, as income is viewed as commercial income by the taxman and so not subject to Withholding Tax, when paid to an overseas beneficiary. There is no specific exemption but foreigners are literally and in practice “outside” the scope of the Thai tax regime.

Locals- Locals face 10-37% Income Tax or can deduct 10% Withholding Tax as a “final levy”, and Capital Gains are tax-exempt.

 

 

 

 

The concept of real estate investment trusts in Thailand (Thai-REIT) was introduced in 2002, as a recovery vehicle for distressed properties after the 1997 Asian financial crisis. The Thai version of a REIT is known in the country as Listed Property Funds for Public Offering (PFPO). This is a type of mutual fund and is listed on the Stock Exchange of Thailand. The law regulating the PFPO is the Securities and Exchange Act B.E. 2535, enacted in 1992. Although PFPO was initially established as a resemblance of the REIT structures in the US and Australia, the PFPO code is considered to be more rigid than other REIT regulations overseas. In October 2010, the Securities and Exchange Commission of Thailand (TSEC) announced that it has approved the new REIT regulatory framework, under the Trust for Transactions in Capital Market Act B.E. 2550 (2007). The new legislations aimed to follow international REIT practices and provide greater flexibility for REITs as compared to the current PFPO code. There will be less restriction on investment activities. More importantly, the maximum total borrowing of ThaiREITs will be raised to 50% of NAV, as opposed to 10% in the case of PFPO. This will give Thai-REITs more flexibility to acquire additional properties and to optimise their capital structure. These changes had been well received by property trust managers as well as institutional investors. The current PFPO will be able to convert into the REIT. However, in March 2011, the government announced that the enactment of the new Thai-REIT framework will be delayed until the Revenue Department clarifies the corporate income tax status of institutional investors. The first Thai-REIT, UOB Apartment Property I Leasehold, was listed on the SET in 2003. As of June 2012, there were 37 listed Thai-REITs investing across retail (5), industrial (8), office (6), lodging (6), residential (7) and diversified (5) property sectors. Thai-REITs are characterised by small size, with an average market capitalisation of US$111 million and lack of property exposure. The average number of properties in a Thai-REIT portfolio is only 8, with the majority of them (11) holding single property portfolios. The largest Thai-REIT in terms of the number of properties is the Ticon Property Fund, with 174 assets in the industrial property sector.

Source: Prof. Alex Anh Khoi Pham - University of Western Sydney: The Development of REIT Markets in Asia (1/1/2014) - Link.

Last Updated on Friday, 14 March 2014 06:15