CSE declares REITs as an investment opportunity to benefit from real estate investment

 

The CSE has announced the introduction of REITs. For average investors, REITs offer an opportunity to enjoy the benefits by investing in real estate and investing in publicly traded CSE securities. While investing in real estate seems to be a standard option, increasing property costs pose a significant challenge for individual investors who usually use bank loans to fund such investments. This timely launch by the CSE and SEC offers greater access to commercial real estate projects for all investor segments and an opportunity to take advantage of the recently witnessed spiraling property prices.

In 1960, in the United States, REITs were first introduced, providing a mechanism for individual investors, especially middle-income earners, to generate revenue by investing in large commercial real estate. With its increasing popularity, particularly in Thailand, Malaysia, and India, this product has made rapid progress in the Asian markets. A REIT is essentially a structure that usually owns and operates real estate, which generates income. Office buildings, shopping centers, apartments, hotels, resorts, self-storage facilities, and warehouses, which include the revenue-generating real estate assets held by the REIT.

A REIT will allow unitholders to receive a portion of the revenue generated by the rental, lease, or sale of these assets. Hence the CSE must allocate share dilution directly to the REIT unitholders. The CSE and SEC have adopted a system mandating the distribution to their investors of 90 percent of the revenue generated. The institutions developed this creative introduction explicitly with the local environment in mind, with the expectation that it would open new horizons for real estate developers and owners to turn completed revenue-generating projects into REITs. Thus this would have their units listed on the CSE under the system now made available to them and publicly traded on the secondary market, similar to equity-generating projects.

The SEC adopted the structure for REITs using rules drawn up by the SEC under sections 53 and 13 of the SEC Act. A notification in the Gazette enforced the rules as mentioned earlier on 31 July in the form of a designated structure. The detailed creation of SEC laws will regulate the overall process of REITs in Sri Lanka.

The CSE also formulated listing guidelines for the listing of units of REITs. A REIT will allow investors by investing in this lucrative investment instrument, which would deliver long-term returns, to diversify their portfolios further. Investors would benefit from a steady income stream, quick entry, and exit route through the secondary market. They would also benefit from the returns on the overall appreciation of real estate properties. The economy would also benefit from implementing anticipated job creation REITs, economic growth, increased tax revenues, listed liquidity, and foreign direct investment.

OSL Take: OSL Take: Sri Lanka's government's aggressive development program has further risen property prices, making properties on the island an accessible investment opportunity with short-term advantages. The proposed project of Colombo Port City will also improve land value. Foreign businesses/investors could, therefore, explore possibilities for business/investment in the real estate industry in Sri Lanka.

VBS/AT/22102020/Z_TB3