asia pacific reits survey 2011

ASIA-PACIFIC REIT SURVEY APRIL 2011

Results of a benchmark survey of senior property professionals to understand perceptions of REIT markets in Asia-Pacific.

2 | Asia-Pacific REIT Survey 2011

AUSTRALIA

INDONESIA

SINGAPORE

VIETNAM

THAILAND

CHINA

HONG KONG

TAIWAN

JAPANSOUTH KOREA

INDIA

MALAYSIA

THE PHILIPPINES

Welcome to the fifth edition of the Asia-Pacific REIT Survey.

The Trust Company is delighted to again partner with Asia-Pacific’s leading law firm, Baker & McKenzie. Baker & McKenzie have once more provided an updated country analysis section with descriptions of the regulatory and investment regime for REITs in each of the 13 markets covered in the survey.

We would like to take this opportunity to thank all those who took the time to complete the survey. This year, we had 137 respondents from 109 companies with 93% of respondents residing or having lived in Asia (79% of those for more than five years). We have intentionally used the same questions for the past five years in order to measure and analyse the trends over this period.

In our last REIT Survey, published in June 2010, we saw dramatic improvement in the short-term outlook for REITs compared to the previous year. In the 2011 survey, the percentage of respondents predicting companies will increase the size of existing REITs and launch additional REITs remained steady at 48% and 20% respectively. We have seen evidence of this over the past 12 months with many Singapore REITs acquiring further real estate – for example, K-REIT and YTL Starhill Global REIT both acquired properties in Australia over the past year. Also, the listing of the Sabana Shari’ah-compliant Industrial REIT in November 2010 created a number of “firsts” including the world’s largest listed Shari’ah-compliant REIT, the first Shari’ah-compliant REIT listed in Singapore, and the first listed REIT in the world to adopt GCC Shari’ah-compliant standards.

However, while growth prospects appear good, the Asia-Pacific REIT markets still have further capacity to grow. The latest European Public Real Estate Association statistics reveal that listed REITs in Asia-Pacific still only represent US$475bn1 or 9.8%2 of the total US$4.877bn3 in underlying real estate. In terms of threats to REITs, the leading challenge to REIT markets’ remains adverse taxation developments, though its percentage has decreased. The percentage for all other threats have either reduced or remained constant. Also, for the first year ever, Australia has pipped perennial leader Singapore as the country offering the greatest growth prospects for REITs. However, growth can take different forms – we have seen six takeover transactions in Australia in the past year – with the most notable being the privatisation of the ING Industrial Fund by a consortium led by Goodman and backed by Canadian Pension Plan Investment Board, All Pensions Group and China Investment Corporation.

Overall, the REIT sector appears positioned for further growth. The sector has successfully navigated to the other side of the two most tumultuous years in its history. It will be interesting to see if this growth takes the form of further mergers and acquisitions, new REIT IPOs, or existing REITs making further property acquisitions.

We hope that you find the 2011 edition of the Asia-Pacific Survey a valuable resource in understanding current market sentiment and where the sector may be heading in the year ahead.

WELCOME 3

ABOUT US 4

BACKGROUND TO SURVEY 5

RESPONDENT PROFILE 6

SURVEY RESULTS 8

COUNTRY SUMMARY AND LEGAL UPDATE 20

CONTACT US 34

WELCOME

1. Source: IP, Real estate March/April 2011 2. Source: IP, Real estate March/April 2011 3. Source: IP, Real estate March/April 2011

The Trust Company and Baker & McKenzie | 3

Milton Cheng Partner Asia-Pacific REITs Practice Group Leader Baker & McKenzie

John Atkin Chief Executive Officer The Trust Company


ABOUT THE TRUST COMPANY When it comes to corporate trustee services, we believe there is no substitute for experience. With over 125 years of financial expertise, which includes over 55 years providing corporate trust services, we at The Trust Company are one of the most experienced trustees in the Asia-Pacific. Our experience is founded upon the consistent delivery of insight, intelligence and proven expertise. These qualities are exactly how we deliver professional governance, compliance, custodial and trustee services to meet your corporate responsibilities.

We’re the only corporate trustee licensed to provide corporate trustee services in Australia, New Zealand and Singapore. This allows us to build tailored products, fashioned to suit the subtleties of businesses in each country within the region – and your business in particular. In addition to facilitating the structuring of over A$3 billion* of property transactions in the past 18 months, we currently act as the trustee or custodian for global assets totalling in excess of A$115 billion*. This showcases that a business has already benefited from the experience, ingenuity and genuine local knowledge of our dedicated teams.

We’ll be your:

• Trustee for any type of collective investment scheme

• Custodian and cash administrator for wholesale, private or exempt property funds

• Debenture/ bond trustee

• Security trustee

• Escrow agent

*as of 31 March 2011

ABOUT US

ABOUT BAKER & MCKENZIEBaker & McKenzie has provided sophisticated legal advice and services to many of the world’s most dynamic and global organisations for more than 60 years. We have the knowledge and resources to deliver the broad scope of quality legal services required to respond effectively to both international and local needs – consistently, confidently and with sensitivity for cultural, social and legal practice differences.

As one of the first international law firms to recognise the importance of the Asia-Pacific, Baker & McKenzie has been assisting clients operating throughout the region for more than 40 years.

We are one of the largest law firms in Asia, with more than 1,100 lawyers spanning 14 offices. As part of Baker & McKenzie’s global network of 3,750 locally qualified, internationally experienced lawyers in 40 countries, each office and member firm provides a full spectrum of legal services to a range of clients. We are able to bring the right team of lawyers to best serve clients’ needs.

Our Asia-Pacific practice comprises full service offices located in Bangkok, Beijing, Hanoi, Ho Chi Minh City, Hong Kong, a correspondent firm in Jakarta, Kuala Lumpur, Manila, Melbourne, Shanghai, Singapore, Sydney, Taipei and Tokyo. In India and South Korea, we have longstanding relationships with respected firms and regularly engage them to provide full regional coverage for clients requiring it.

The Baker & McKenzie Asia-Pacific REITs Group has been at the forefront of ground-breaking REIT transactions in Asia. The team has acted on almost all of the significant transactions to date involving REITs listed or with assets in Hong Kong and has also advised on other significant REIT-related deals across Asia-Pacific and Australia.


BACKGROUND

In order to develop a better understanding of the REIT markets in Asia-Pacific and the local nuances in each country, The Trust Company, in 2007 undertook an inaugural survey of real estate professionals in the Asia-Pacific region on their perceptions for growth in the Asia-Pacific REIT markets. This is the fifth issue of the Asia-Pacific REIT Survey that continues to study and compare these results, now over a five-year period.

This survey seeks to ascertain their views on the following specific areas:

1. Property Market growth: which countries offer the best prospects for growth?

2. Market growth: which markets offer the best prospects for growth of REITs?

3. REIT opportunities: which countries offer the best opportunities for REITs?

4. Overall REIT potential: what is the overall rating for each country after combining the results of the 3 measures?

5. Regulatory support: how supportive is the regulator to new REITs in each country?

6. REIT outlook: what is the greatest threat to REITs, and what does the future of REITs look like?

The Trust Company is delighted to again be partnering with Baker & McKenzie for this year’s survey. Baker & McKenzie have provided the country summary and legal update. This is a succinct update of the current REIT legislation, along with their perspective on issues affecting that particular market.

SURVEY METHODOLOGY:

Members of the property community were invited by email to participate in the survey. This email contained a URL to an on-line survey tool, with an individual login and password for security and to protect individual respondent confidentiality.

The on-line survey was undertaken between 24 January and 21 February 2011 by Latham Consulting, a Sydney-based performance management consultancy.

DATA INTERPRETATION

The survey questions used a 5-point rating scale where 1 and 2 equal a negative rating, 3 equals a neutral rating and 4 and 5 equal a positive rating.

For easy interpretation a colour code system has been used in some graphics, where orange highlights a negative rating, purple highlights a neutral rating and blue highlights a positive rating.

In order to monitor changes in the REIT market outlook over time, we have compared the results year-on-year.

The survey and research each year was taken between the following times:

• 2007: 4 December 2006 and 19 January 2007

• 2008: 20 November 2007 and 16 December 2007

• 2009: 16 October and 10 November 2008

• 2010: 28 January and 8 March 2010

Rating index

Positive Neutral Negative


RESPONDENTS

Other 5%

Singapore 25%Australia 60%

Hong Kong 7%

Malaysia 2%

A total of 137 respondents completed the survey, about the same as 2010.

The quality of the sample is excellent in that the 109 companies represented are all well respected in the property market; 93% of respondents reside or have lived in Asia (79% for more than five years); 57% are senior property professionals, 58% are with international companies.

The profile of respondents is similar to previous years. Key points regarding the demographics of respondents are outlined below.

Country of residence

Time in Asia

Nationality

10 years+ 57%

5 - 10 years 22%

3 - 5 years 13%

Less than a year 1%

Do not work in Asia 7%

Australian 67% Singaporean 13%

Chinese 2%

Other 4%

British 4%

Malaysian 4%

New Zealand 2%American 2%


Age

Type of Firm

Role

Under 30 years - 2%

30-40 years - 28%

40+ years - 70%

Local 42%International 58%

Property owner 7%

Tax/Acc’t professional 13%

Investment banker 7%

Lawyer 22%

Property professional 19%

Fund manager 31 %


1. WHICH ASSET CLASS OFFERS THE BEST PROSPECTS FOR REIT GROWTH?Respondents were asked to rate each REIT asset class on their growth prospects.

The recovery from the global financial crisis that significantly impacted the REIT market in Asia in 2009 has continued. Market growth prospects have recovered across most sectors and overall across the region by 6% from last year, to be back to a level not seen since 2007/08.

The Commercial Office sector has the highest rating (67%). This sector has shown the greatest growth (12%) since last year and has overtaken Infrastructure (66%) which is now ranked second by respondents although it is at its highest level since the survey began.

Healthcare is also at its highest level (60%) since the survey began, with growth of 7%, along with Industrial (59%) and Hotels (55%).

Residential has declined slightly to 54% but is still slightly above its 2007 high, with only 37% of people rating it positively.

67% 66%

60% 59%57%

55% 54%

HotelsIndustrialHealthcareCommercialOffice

ResidentialRetailInfrastructure

2007 2008 2009 2010 2011

REIT Asset Class – Ratings Trend – 2007-2011

0

10

20

30

40

50

60

70

80

90

100

SURVEY RESULTS


2. WHICH COUNTRY’S PROPERTY MARKET OFFERS THE BEST PROSPECTS FOR GROWTH? Respondents were asked to rate each country on their property market growth prospects.

Property market growth prospects have recovered by a further 7% across the whole region on top of growth of 7% last year, with 38% of respondents providing positive ratings.

China (73%) has increased by 5%, back to pre-GFC levels, and is still ranked as the best prospect for growth with 79% of respondents rating the market positively. India retains its second ranking (up 7% to 67%) and is rated positively by 64% of respondents.

Singapore has shown growth of 9% to rank third at its equal highest rating of 64%. Australia, with growth of 3%, is now ranked fourth with its highest rating yet (61%). Hong Kong has shown growth of 6% to reach its highest level (59%) in the history of the survey.

Double-digit growth was shown by Indonesia, up 12% (on top of 15% last year) to a high of 58%, level with Vietnam. Malaysia recorded growth of 10% to its high of 55%. Taiwan and Korea grew 3% to 53%.

2010 new entrants Thailand (49%) and The Philippines (47%) showed similar growth. Despite a 6% growth from 2010, with only 15% of respondents rating them positively, Japan continues to be seen as the least attractive (42%).

Property Market Growth – Ratings Trend – 2007-2011

0

10

20

30

40

50

60

70

80

90

100

PhilippinesThailand

MalaysiaIndonesia KoreaTaiwanHong Kong VietnamSingapore

AustraliaIndiaChina

REGIONJapan

2007 2008 2009 2010 2011

57%

73%

67%64%

61%59% 58% 58%

55% 53% 53%49%

47%

42%


3. WHICH COUNTRIES IN THE ASIA-PACIFIC OFFER THE BEST OPPORTUNITY FOR REITs?Respondents were asked to rate each country in terms of its REIT potential.

REIT opportunity prospects have improved across the whole region by 4% from last year to 50%.

Australia, at its highest ever level, (up 6% to 66%) is now ranked just ahead of perennial leader Singapore (up 5% to 65% which is still below the 2007/08 levels).

China has shown a slight decline (1%) to 57% but retains third place, with Hong Kong improving 3% to 53%, though these levels are still below the 2007/08 levels.

The biggest increases were Malaysia (up 8% to 51%), Indonesia to a new high (up 6% to 40%) and Vietnam (up 5% to 41%).

2010 newcomers Philippines (up 3% to 40%) and Thailand (up 4% to 39%) are still seen as the least attractive growth prospects.

REIT Opportunity – Ratings Trend – 2007-2011

0

10

20

30

40

50

60

70

80

90

100

Indonesia ThailandVietnam PhilippinesJapan

TaiwanMalaysia IndiaKoreaHong Kong

ChinaAustraliaREGION Singapore

50%

66% 65%

57%

53%51% 50% 49%

48%46%

41% 40% 40% 39%

2007 2008 2009 2010 2011


4. HOW SUPPORTIVE IS THE REGULATOR TO NEW REITs IN EACH COUNTRY?Respondents were asked to rate the regulatory support of REITs in each country.

Ratings of Regulatory Support have improved, overall, by 3% from last year to a survey high of 49%.

Greatest increases were in Singapore and Hong Kong (7%), Australia, Malaysia and Vietnam (5%).

Singapore (77%) is still ranked as the highest in regulatory support and was rated positively by 81% of respondents, with Australia still ranked second (72%) and rated positively by 74%.

Hong Kong is ranked a distant third (61%) with Japan (53%) ranked fourth.

Vietnam (37%), India (36%) and Indonesia (34%) ranked lowest and have the highest proportion of respondents providing a negative rating.

49%

77%

72%

61%

56%

51%48%

46%

41% 41% 40%

37% 36%34%

Regulatory Support – Ratings Trend – 2007-2011

0

10

20

30

40

50

60

70

80

90

100

IndonesiaVietnamThailandIndiaPhilippines

TaiwanChinaKorea

MalaysiaJapan

Hong KongAustraliaREGION

Singapore

2007 2008 2009 2010 2011


5. WHAT IS THE OVERALL REIT POTENTIAL RATING FOR EACH COUNTRY?An overall “Potential” rating for each country is calculated by combining the three main measures of:

1. Property market growth

2. REIT opportunities

3. Regulatory support

Overall “Potential” ratings have improved by 5% to 52% from last year, back to the pre GFC level in 2007.

Greatest increases were in Malaysia (8%), Singapore (7%) and Indonesia (7%).

Singapore (69%) is still rated as the highest overall with Australia ranked second (66%), its highest survey rating.

Indonesia (44%), Philippines (43%) and Thailand (43%) have below average ratings and are still seen as the countries with least potential.

Overall potential

% +/- 2010

property market growth

% +/- 2010

REIT opportunity

% +/- 2010

Regulatory support

% +/- 2010

SINGAPORE 69% 7% 64% 9% 65% 5% 77% 7%

AUSTRALIA 66% 5% 61% 3% 66% 6% 72% 5%

HONG KONG 58% 5% 59% 6% 53% 3% 61% 7%

CHINA 57% 1% 73% 5% 57% -1% 40% -4%

MALAYSIA 53% 8% 55% 10% 51% 8% 51% 5%

INDIA 51% 3% 67% 7% 49% 2% 36% -1%

KOREA 50% 2% 53% 3% 50% 1% 48% 2%

JAPAN 48% 4% 42% 6% 48% 4% 56% 3%

TAIWAN 48% 2% 53% 3% 46% 3% 46% 2%

VIETNAM 45% 4% 58% 4% 41% 5% 37% 5%

INDONESIA 44% 7% 58% 12% 40% 6% 34% 4%

PHILIPPINES 43% 4% 47% 9% 40% 3% 41% -1%

THAILAND 43% 6% 49% 8% 39% 4% 41% 4%

REGIONAL AVERAGE

52% 5% 57% 7% 50% 4% 49% 3%

Country Rating 2011


5.1 COUNTRY SUMMARY

Singapore Rating + / - Ranking Ratings Distribution (%)

2007 2008 2009 2010 2011 2010-11 2011 2010 Positive Neutral Negative

OVERALL "POTENTIAL" 70% 71% 57% 62% 69% 7% 1 1 63% 33% 4%

PROPERTY MARKET GROWTH 61% 64% 46% 54% 64% 9% 2 4 53% 43% 5%

REIT OPPORTUNITY 72% 71% 52% 60% 65% 5% 2 1 55% 38% 6%

REGULATORY SUPPORT 78% 79% 73% 70% 77% 7% 1 1 81% 18% 2%

Australia Rating + / - Ranking Ratings Distribution (%)






Hong Kong Rating + / - Ranking Ratings Distribution (%)






An overview of each country summary and accompanying comments from the respondents are outlined below:

CommentsProperty Market Growth:

• Good office employment trajectory bodes well for occupation and rents; the tendency of the government to release large volumes of land adds some risk

REIT opportunity:

• There is still a lot of stock to securitize; attractive location for international assets too


• Good fundamentals of demand and supply; shortage of stock for institutional capital; cost of debt is at or above property yield; cost of hedging A$ is high - so international buyers are deterred by technical factors rather than property fundamentals

• Good - in particular, Sydney and Melbourne office property

Regulatory support:

• Outstanding issues to be clarified regarding Managed Investment Trust and Investment Management legislation; Hope the various government agencies are speaking to each other


• Good market fundamentals but prices pumped up by mainland Chinese investors who are not yield sensitive; zero supply limits ability to invest; any upward move in interest rates likely to have major negative impacts

REIT Opportunity:

• Little stock to acquire; no real tax benefits over a real estate company which does not suffer from REIT restrictions


China Rating + / - Ranking Ratings Distribution (%)




REIT OPPORTUNITY 55% 58% 49% 58% 57% -1% 3 3 43% 36% 20%

REGULATORY SUPPORT 35% 40% 34% 44% 40% -4% 10 7 9% 48% 44%

Malaysia Rating + / - Ranking Ratings Distribution (%)






India Rating + / - Ranking Ratings Distribution (%)





REGULATORY SUPPORT 39% 35% 32% 37% 36% -1% 12 10 7% 41% 52%


• Problems for international buyers to obtain required returns - increasing competition from local investors who have different rationale for investment and hence different pricing metrics; offshore vehicles have inherent tax risk; development plays put too much control in hands of local partners. Overall an attractive but difficult market for foreign investors

• Whilst we believe the market long term has growth prospects, we believe it is overheated as a REIT opportunity

REIT opportunity:

• Demand for income from retail investors - insatiable demand for quality product

• Primarily cross border REITs as REIT code is not yet ready in China

• For the foreseeable future, I do not see that any domestic REIT will be rewarded with going back offshore given the experience they have had during the GFC hence why I have rated China’s prospects for investment offshore as poor


• Good economics but tenants seem to be happy to occupy very low quality space and hence rental trends seems to be very flat


• India’s indifference to REIT law and its logistic and cultural difficulties are the reasons for giving it a low growth prospect marking

• Should be strong, difficult without strong regulatory support



• Good economic fundamentals but tough to compete with local capital


• Tokyo - OK; less opportunities outside of Tokyo

REIT Opportunity

• Poor fundamentals to underpin investments


• Economy going well


• Small, high risk market with high inflation and falling value of local currency able to wipe out any US$ returns to investors

South Korea Rating + / - Ranking Ratings Distribution (%)



PROPERTY MARKET GROWTH 54% 57% 39% 50% 53% 3% 9= 8 23% 64% 12%



Japan Rating + / - Ranking Ratings Distribution (%)






Vietnam Rating + / - Ranking Ratings Distribution (%)






Taiwan Rating + / - Ranking Ratings Distribution (%)







Indonesia Rating + / - Ranking Ratings Distribution (%)




REIT OPPORTUNITY 31% 33% 26% 34% 40% 6% 11= 13 11% 45% 44%


Philippines Rating + / - Ranking Ratings Distribution (%)


OVERALL "POTENTIAL" n/a n/a n/a 39% 43% 4% 12= 11 11% 54% 36%

PROPERTY MARKET GROWTH n/a n/a n/a 38% 47% 9% 12 12 15% 58% 27%

REIT OPPORTUNITY n/a n/a n/a 38% 40% 3% 11= 10 10% 49% 41%

REGULATORY SUPPORT n/a n/a n/a 42% 41% -1% 8= 9 7% 54% 39%

Thailand Rating + / - Ranking Ratings Distribution (%)


OVERALL "POTENTIAL" n/a n/a n/a 37% 43% 6% 12= 12 13% 50% 38%

PROPERTY MARKET GROWTH n/a n/a n/a 40% 49% 8% 11 11 18% 58% 24%

REIT OPPORTUNITY n/a n/a n/a 35% 39% 4% 13 12 10% 40% 50%

REGULATORY SUPPORT n/a n/a n/a 37% 41% 4% 8= 11 9% 51% 40%


• Somewhat unknown market; unclear if there is any liquidity to sell

• Transparency remains a concern

Comments

Property Market Growth:

• Small economy, historically volatile politics deters investors


6. OUTLOOK FOR REITsRespondents were asked a number of questions on the future of, and threats to REITs, to determine the overall outlook for the future.

6.1 FUTURE OF REITsRespondents were asked which of these three statements best reflects their view of the future of REITs in the Asian region:

In the short-term (1-2 years) and long-term (3-5 years) companies with existing REITs will:

• Stay about the same size

• Increase the size of existing REITs

• Launch additional REITs

The short term outlook for REITs remains the same as last year, but is a more positive sentiment than in 2009:

• 48% of respondents predict companies will increase the size of existing REITs;

• 32% expect existing REITs will stay about the same size;

• 20% of respondents believe additional REITs will be launched, well down on pre GFC levels.

20% 47% 33%

38% 55% 7%

45% 51% 4%

3% 20% 77%

0 10 20 30 40 50 60 70 80 90 100

2009

2008

2007

2010

2011Short term (3-5 years)20% 48% 32%

Short-Term Outlook For REITs - Trends

Launch additional REIT’s Stay about the same sizeIncrease the size of existing REIT


2%

55% 43% 2%

60% 37% 3%

67% 31%

42% 53% 5%

54% 46%

0 10 20 30 40 50 60 70 80 90 100

2009

2008

2007

2010

2011

Long-Term Outlook For REITs - Trends

Launch additional REIT’s Stay about the same sizeIncrease the size of existing REIT

The long term outlook is more optimistic and above 2008 levels:

• 60% of respondents envisage the longer term future of Asian REITs as one where companies would launch additional REITs, up from 55% last year;

• 37% see increases in the size of existing REITs.


Threats to REITs 2007 2008 2009 2010 2011 +/-

% % % % % 2009 - 10

ADVERSE TAXATION DEVELOPMENTS 70% 59% 62% 71% 66% -5%

EFFECTS OF FINANCIAL ENGINEERING 70% 62% 74% 69% 66% -3%

REGULATORY PROCESS 67% 62% 64% 65% 65% 0%

LOW YIELDS 67% 63% 59% 65% 64% -1%

POOR UNDERSTANDING 58% 47% 58% 58% 56% -2%

COST TO MARKET 50% 53% 55% 57% 56% -1%

Respondents were asked to rate each of six potential threats on a scale of 1 to 10.

Respondents see the biggest threats to the future of REITs as:

• Adverse taxation developments was rated the biggest threat (66%), down from 71% last year and compared to 59% in 2008;

• Effects of financial engineering (66%), down from 69% last year;

• Regulatory process (65%) has been relatively consistent over the period of the survey;

• Low yields (64%) is consistent with last year and back to pre GFC levels;

• Poor understanding (56%) has remained relatively constant;

• Cost to market (56%) continues to be seen as the lowest threat.

6.2 WHAT IS THE BIGGEST THREAT FOR REITs?


1. AUSTRALIAWhen was the REIT regime introduced?

In Australia, there is a long history of REITs as either listed property trusts (A-REITs) or unlisted property trusts. GPT was the first A-REIT, being launched in 1971.

Is there a regulatory framework and, in particular, a separate regime for REITs apart from that for listed entities in general?

There is no special REITs regime. The Corporations Act 2001 (Cth) (Corporations Act) regulates widely held REITs in Australia. A-REITs are also required to comply with the Australian Securities Exchange (ASX) Listing Rules.

Have there been recent deals and regulatory or other developments?

The response of A-REITs to the global financial crisis was to raise larger amounts of capital to reduce leverage, restructure debt arrangements and explore simplification and consolidation.

In addition, recent tax changes have given an impetus to foreign investors entering the market, including foreign pension and sovereign wealth funds. There has been significant investment by Singapore REITs, north Asian pension funds and other Asian investment funds.

Identify any significant factors that may/will impact upon the development of the REIT market in the jurisdiction, such as:

Land ownership:

• Are there any restrictions on foreign ownership?

The Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA) requires that notice be given to the Foreign Investment Review Board (FIRB) whenever there is an acquisition of an interest in Australian urban land (or urban land corporation or trust) by a substantial foreign interest, and powers are conferred to restrict such investments.

A “substantial foreign interest” is defined in section 9A of the FATA as where a single foreigner (and any associates) has 15% or more of the ownership or several foreigners (and any associates) have 40% or more in aggregate of the ownership of any corporation, business or trust.

A limited range of exemptions apply to various persons, including US investors.

Licensing/approval of the entity managing the REIT (the “Manager”):

• Is the Manager external or owned by the REIT?

Management may be either external or internal. Where management is internal, the Manager of the REIT is generally owned by another company, the shares of which are stapled to a unit in the REIT.

• Does the Manager need to be licensed and what are the more significant criteria for the licence/approval?

Section 601FA of the Corporations Act requires the operator of a REIT that is registered, to be a public company and hold an Australian Financial Services Licence (AFSL). An AFSL will generally be granted if the applicant

can demonstrate competency in the provision of the financial service (such as the operation of an investment scheme such as a REIT) and there is no reason to believe that the applicant will not fulfil the various obligations imposed by the AFSL and the Corporations Act. The regulatory approval process involves both a review of the applicant and consideration of the kinds of financial services which the applicant proposes to provide.

Foreign exchange control:

• Are there any foreign exchange controls?

No.

Income/profit tax etc:

• Is there any tax exemption at the REIT level for the REIT’s income/profits?

The REIT will not be taxed at the REIT level provided that the unitholders (investors) of the REIT are presently entitled to all of the net income and the REIT is not taxed as a company. The REIT will not be taxed as a company if the REIT is not widely held, or where it is widely held, its business activities are limited to earning passive income, such as rent, and not operating a business. A-REITs can generally satisfy these requirements.

• Is there any tax pass-through to the investors?

Tax deferred income (broadly where the taxable component of a REIT distribution is less than the amount of its actual or accounting distribution) is not ordinarily included in an investor’s annual assessable income. However, tax deferred income will reduce an investor’s capital gains tax (CGT) cost base in the units, meaning that an investor will pay tax on such reduced cost base at the time of disposal (although at the concessional capital gains tax rate).

• Are there any other tax incentives for REITs?

No specific tax concessions.

• Is stamp duty applicable?

Stamp duty is payable by REITs on the acquisition of properties, and usually on the acquisition or issue of equity in non-widely held REITs.

• Is withholding tax applicable?

Generally, withholding tax can be payable on distributions of Australian sourced gains to non-residents at the top marginal rate of tax relevant to the non-resident. Under the Managed Investment Trust (MIT) regime, initially introduced in June 2008, from 1 July 2010 “fund payments” made to an MIT to a member of the scheme located in a foreign country that is an Exchange of Information jurisdiction is subject to a final tax liability of 7.5%. The requirements for a REIT to qualify for concessional tax treatment under the MIT regime are complex, and include having an Australian resident trustee, being a “managed investment scheme” under the Corporations Act, being “widely held” (which is defined in a particular manner with further complex requirements), and having investment management activities in Australia.

COUNTRY SUMMARY AND LEGAL UPDATE

The following section provides an update on the REIT legislation in each of the selected countries.


2. CHINAWhen was the REIT regime introduced?

In December 2008 the Chinese Government formally announced its support for pilot schemes of Chinese REIT (C-REIT) products to be offered to the market.

In 2009, a REIT Working Group led by the Central Bank was established to develop the C-REIT regime in China.

At the time of writing, the Beijing, Tianjin and Shanghai local governments had prepared various C-REIT products, mainly inter-bank products, for approval by the State Council. These products should be launched soon after approval by the State Council, however it is uncertain when this will be.


Specific C-REIT legislation will be enacted and will be premised on the existing national legislation governing trust products, securities offerings, investment fund management, and securitisation. Various draft C-REIT regulations have been formulated, however these are yet to be promulgated.

It is expected that China will run two different pilot schemes of C-REIT products. One is essentially a scheme of securitisation of revenue streams from a pool of real estate assets that will be offered to institutional investors and traded on the inter-bank market. The other product will be offered to retail investors and will resemble the REIT products offered in Hong Kong and Singapore.


Title system:

• Does the title system pose any difficulty for acquisition of property for investment by a REIT?

With respect to the securitisation C-REIT product, there will be no transfer of real estate title. It has been reported that there will be a new system for registration of trust over real estate in support of this type of C-REIT product.

With respect to the retail C-REIT product, the real estate title will be transferred to the trustee.

Land ownership:


With effect from July 2006, foreign companies are no longer allowed to directly acquire and hold investment property in China. Acquisitions completed before July 2006 are grandfathered.



With respect to the securitisation C-REIT product, it is expected that legal title of the real estate assets will not be transferred and the existing owner will continue to retain operational control over the assets.

With respect to the retail C-REIT product, legal title of the real estate assets will be transferred to the C-REIT trustee and the real estate assets will be operated by an external Manager.


With respect to the securitisation C-REIT product, the C-REIT Managers will be trust companies licensed by the China Banking Regulatory Commission. The qualification requirements are yet to be announced.

With respect to the retail C-REIT product, the C-REIT Managers will be investment fund management companies licensed by the China Securities Regulatory Commission. At the time of writing, the qualification requirements were yet to be announced.

Foreign investment:

• Are there any restrictions on foreign investment in real estate?

Yes. China has strict exchange controls over all foreign direct investment transactions. Foreign companies are not allowed to directly acquire and hold investment property in China. Foreign investment in Chinese-incorporated real estate companies are subject to many regulatory restrictions.



It is expected that the C-REIT regime will adopt the general principle of tax neutrality, i.e. there will be no special income/profits tax exemption for C-REIT products.


It is expected that this will be permitted.

• Are there any other tax incentives for REIT

It is expected there will be no special tax incentives for C-REIT products.


Real estate transactions are subject to stamp duty and other indirect taxes. It is expected that there will be no special exemption for C-REITs.


It is expected that there will be no special exemption for C-REITs.


3. HONG KONGWhen was the REIT regime introduced?

The Securities and Futures Commission (SFC) introduced the Code on Real Estate Investment Trusts (REIT Code) in July 2003. To date there have been eight REITs (HK-REITs) listed on The Stock Exchange of Hong Kong Limited (SEHK).


The key laws and regulations that apply to publicly listed HK-REITs are the REIT Code, the Securities and Futures Ordinance (SFO), the Codes on Takeovers and Mergers and Share Repurchases (Takeovers Code), and the SEHK Listing Rules.

The REIT Code sets out specific guidelines for the establishment and operation of HK-REITs. The SFO deals with authorisation and licensing matters for HK-REITs. The Takeovers Code governs takeover and merger activity involving HK-REITs. As listing is mandatory, HK-REITs must also comply with the SEHK Listing Rules.


On 25 June 2010, the regulatory framework governing the takeovers and mergers of listed companies in Hong Kong was extended to REITs with a primary (and in certain circumstances, a secondary) listing of units in Hong Kong.

The provisions in the SFO relating to market misconduct and disclosure of interests in listed companies will be extended to include (among others) listed HK-REITs. Further developments in this regard are expected later in 2011.

The SEHK and the SFC have publicly indicated that they are preparing for the imminent listing of RMB-denominated equity securities. There is an expectation that the first listed RMB-denominated securities will be by way of a HK-REIT.


Title system:


No.

Land ownership:


No.



The REIT Code allows both externally and internally managed structures. All but one HK-REIT has an externally managed structure.


Yes. HK-REIT Managers must be licensed and their activities

are regulated under the SFO. Key licensing requirements for Managers include Hong Kong incorporation, responsible officer composition, competence and relevant experience, and sufficiency of financial resources.

Foreign investment:


No.

Foreign exchange control:

• Are there any foreign exchange controls?

No.



SFC authorised and listed REITs are exempt from profits tax in Hong Kong to the extent the profits arise from investment activities that comply with the REIT’s constituent documents and the REIT Code. Where a HK-REIT holds real estate directly, and its rental income is not subject to profits tax, property tax will apply at 15%.

Where real estate is held via a Special Purpose Vehicle (SPV), the SPV is typically subject to profits tax in respect of profits arising in or derived from Hong Kong (e.g. rent from Hong Kong real estate) at 16.5%. Property tax will generally not apply in this situation.

Income derived from foreign real estate and capital gains are exempt from profits tax and property tax does not apply to foreign rental income or capital gains.


While not specifically tax-exempt, the Hong Kong Inland Revenue Department’s practice is not to tax a HK-REIT’s distributions in the hands of unitholders. Investment/capital gains on disposal of units are not subject to profits tax. However, trading or revenue gains are subject to profits tax in the hands of persons carrying on a business of trading units in Hong Kong.

• Are there any other tax incentives for REIT?

No.


The transfer of HK-REIT units, shares in a Hong Kong-incorporated SPV and Hong Kong real estate are subject to stamp duty in Hong Kong.


There is no withholding tax on distributions paid by a HK-REIT.


4. INDIAWhen was the REIT regime introduced?

India does not have an existing regime for REITs in India (I-REITs).

The Securities and Exchange Board of India (SEBI) has been contemplating the introduction of an I-REIT regime in India, and issued Draft Real Estate Investment Trusts Regulations (Draft Regulations) in 2007. While media reports have indicated that the final regulations may be issued in the short term, SEBI is yet to advise.

In the interim, under the SEBI (Mutual Funds) (Amendment) Regulations 2008 (REMF Regulations) Real Estate Mutual Funds (REMF) may invest directly or indirectly in real estate assets provided certain criteria are met.


There is currently a proposal to have a separate regime for I-REITs.

The Draft Regulations provide that Real Estate Investment Management Companies (REIMCs) registered with the SEBI can manage schemes under a real estate investment trust (i.e. the I-REIT).

All schemes launched by the I-REIT under the Draft Regulations will be required to obtain a rating from a credit agency and units of the scheme will have to be listed.

The I-REIT must submit certain information to the relevant stock exchanges and the investors, and comply with obligations under listing agreements.

No I-REIT, under all its schemes, shall have exposure to more than 15% of any single real estate project, and schemes are prohibited from investing in vacant land or engaging or participating in property development activities.

A scheme is required to distribute not less than 90% of its annual net after tax income each year.


Title system:


The Draft Regulations require that the title investigation and legal documentation of scheme properties shall be examined by advocates who are on the panel of financial institutions and scheduled banks who extend housing loans on mortgage of properties.

In India, the State does not hold a title register nor does it certify real estate title. This has led to significant litigation as well as a number of disparate regulatory responses on ownership of land. These include the Transfer of Property Act, the Indian Registration Act and the Indian Evidence Act.

Land ownership:


Subject to very limited exceptions, the Foreign Exchange Management (Acquisition and Transfer of Property in India) Regulations issued by the Reserve Bank of India under the Foreign Exchange Management Act 1999 restrict foreign ownership of immovable property in India.



A REIMC need not necessarily be independent of the I-REIT. However, the REIMC must be a company incorporated under the Indian Companies Act 1956 and be registered with SEBI.


The REIMC must be registered with SEBI. Some significant registration criteria include minimum net asset values, directors and key personnel (with particular expertise and qualifications), and independence requirements including that at least 50% of REIMC directors are independent and the management of the I-REIT and the management of REIMC must be independent of each other.

Foreign investment:


See “land ownership” above.


• Is there any tax exemption at the REIT level for the REIT’s income/ profits?

Tax implications are yet to be settled.


Stamp duty rates on conveyance of immovable property in India are high and depend on the State in which the REIT is operational and acquires real estate.


Tax implications are yet to be settled.

We would like to thank our correspondent law firm, Economic Laws Practice, for preparing the materials in respect of India.


5. INDONESIAWhen was the REIT regime introduced?

A REIT regime was formally introduced by the Indonesian Capital Markets and Financial Institutions Supervisory Agency (Bapepam – LK) on 18 December 2007 by issuing four regulations (Regulations) on Real Estate Investment Funds (REIF).


The Regulations allow:

(a) a REIF the option to be listed on the Indonesia Stock Exchange (IDX). Listed REIFs will be subject to the listing rules of the IDX;

(b) REIFs to invest only in (i) Indonesian real estate (Real Estate Assets), (ii) securities of real estate companies (which may be listed on the IDX) (Assets related to Real Estate), and (iii) cash or cash equivalents; and

(c) REIFs to invest directly or indirectly through a special purpose company (SPC).

In managing REIFs, an Investment Manager must ensure that the proportion of the REIF’s portfolio is as follows:

(a) Real Estate Assets must comprise at least 50% of the REIF’s Net Assets Value (NAV);

(b) if the REIF invests in a combination of Real Estate Assets and Assets related to Real Estate, then such combination must comprise at least 80% of the REIF’s NAV, in which the investment in Real Estate Assets must comply with (a) above; and

(c) investments in cash must not comprise more than 20% of the REIF’s NAV.


Due to the absence of further regulations in the relevant sectors, recent REIF deals involving properties in Indonesia were effected through offshore REIFs, e.g. an A-REIT in Singapore that holds assets in Indonesia through an SPV.


Land ownership:


Yes. Under Indonesian land regulations, acquisition of title to real property assets will require a REIF to complete such acquisition through an SPC established under Indonesian law. In general, Indonesian land law requires an individual or an Indonesian legal entity to hold title to land.

Under Indonesian law, (i) the Government does not guarantee land title, and (ii) an Indonesian legal entity is only eligible to acquire leasehold land title from the Government for a certain period of time (which varies depending on the land title involved).

Further, in a property transfer transaction, a 5% final income tax (payable by seller) and a 5% final land transfer

duty (payable by the purchaser) will be applicable.

If the seller is a taxable entrepreneur for VAT purposes the sale of land will also be subject to 10% VAT.

In addition, if the real estate property qualifies as “luxurious properties”, the transfer will also be subject to Luxury Goods Sales Tax of 20%. The criteria for “luxurious properties” are as follows:

(a) houses and town houses from types of non-strata title with an area of 350m2 or more; or

(b) apartments, condominiums, town houses, and others from types of strata title with an area of 150 m2.



External. The Investment Manager establishing the REIF must be independent from the REIF.


An Investment Manager must be licensed by Bapepam-LK.

Foreign investment:


In Indonesia, investment in real estate may be 100% foreign owned. However, foreign investments in Indonesia must be through the establishment of an Indonesian limited liability company.

Income/profit tax etc


Indonesian tax regulations do not specifically stipulate any special tax treatment for REIFs. Normal tax treatment may apply to REIFs, and there could be double taxation issues that would need to be examined on a case-by-case basis.


No specific stipulation on tax pass-through to the investors for a REIF.


No specific tax incentives for a REIF.


Stamp duty is applicable on documentation sought to be relied upon in Indonesian courts.

Currently, the nominal amount of the Indonesian stamp duty is maximum Rp.6,000. Generally, the stamp duty is due to be paid when the documents are executed. The stamp duty regulation specifies that the stamp duty for documents executed outside Indonesia must be paid at the time the documents are used in Indonesia (post-stamping).


No.


6. JAPANWhen was the REIT regime introduced?

The REIT regime was introduced by the Law on Investment Trust and Investment Companies (Investment Trust Law) on 30 November 2000.


Japanese Real Estate Investment Trusts (J-REITs) are companies dedicated to owning and operating income-producing real estate, including office, residential, commercial and other buildings.

J-REITs are subject to high disclosure standards and a strict structural framework based on laws and regulations, including Tokyo Stock Exchange (TSE) listing rules. Currently, all publicly listed J-REITs are of the company type and closed-end (unitholders having no redemption right).

A J-REIT has no employees and delegates real estate business operations to an asset management firm, which manages the asset portfolio according to the J-REIT’s investment policy.

The TSE’s listing criteria for J-REITs focus on the nature, proportion and value of real estate assets held within the J-REIT fund.


One REIT asset manager set up an unlisted open-ended investment corporation in March 2010.

TSE has accepted REIT acquisition of foreign property.

Tax laws have changed the 90% distribution rule from a taxable income test to an accounting retained earning test.

Seven REIT merger transactions have completed since 2010. As a result, the current number of listed J-REIT is 35.


Significant factors.The supply of property, property market condition, interest rates, J-REIT yield rates, quality of the asset manager, building quality, taxation of the REIT and property are all significant to the development of the market.

Land ownership: • Are there any restrictions on foreign ownership?

No.

Licensing/approval of the entity managing the REIT (the “Manager”):• Is the Manager external or owned by the REIT?

External.


Yes, a Financial Services Agency (FSA) licence is required.

Applicants for a licence must demonstrate their capability for asset management.

Foreign investment: • Are there any restrictions on foreign investment in real

estate?

No. However, more than 50% REIT shares must be held by domestic investors.

Foreign exchange control:• Are there any foreign exchange controls?

Yes.

Income/profit tax etc:• Is there any tax exemption at the REIT level for the

REIT’s income/profits?

If a J-REIT pays out 90% or more of its retained earnings as dividends, those dividends will be deductible for corporate tax purposes.


No.


There are tax benefits for individual investors in REITs that relate to dividend payments and capital gains. J-REITs pay a reduced amount of registration tax and property taxes at the time of acquisition of the property by the J-REIT.


No.


Dividend: Yes.

Capital Gain: Partly yes. An investor may elect 10% withholding tax instead of tax filing.

Identify any other factors may/will impact on the REIT industry in the jurisdiction.

Convertible bonds are not allowed for J-REITs. Currently, rights issues are very rare in Japan.

J-REITs may not hold 50% or more shares or interests in another company or vehicle. One group company may not hold 50% or more of REIT shares (a tax law requirement).

Identify alternative vehicles/investment structures.

Theoretically, a trust structure is an acceptable alternative.


7. KOREAWhen was the REIT regime introduced?

The Korean REIT (“bu-dong-san-tu-ja-hoe-sa”) (K-REIT) regime is regulated by the REIT Act (the Act) which came into effect July 2001.


K-REITs are a type of joint stock company (“chusik hoesa”) and are subject to the Commercial Code and the Act.

There are three types of K-REITs: (i) self-managed REITs; (ii) consigned-management REITs; and (iii) corporate restructuring REITs.

There are minimum capital requirements and operating a K-REIT requires a licence from the Ministry of Land, Transport and Maritime Affairs.

Generally, K-REITs that meet the listing requirements list on the securities market or the Korea Securities Dealers Association (KOSDAQ). A K-REIT cannot invest in a real estate development project until it is listed.


Following amendments to the Act in 2010, the number of K-REITs has grown. As at January 2011, there were 52 K-REITs in total: 29 corporate restructuring REITs; 12 consigned-management REITs and 11 self-managed REITs.

Key developments of the 2010 amendments were: to lower the minimum capital for incorporation and the minimum capital requirement; to lower the minimum public offering requirement until December 31, 2012; to raise the maximum ownership of one shareholder; to expand the scope of permissible in-kind contributions after obtaining the licence; upon shareholders’ exercise of the appraisal right, to allow a REIT to postpone the purchase with approval from the Ministry of Land, Transport and Maritime Affairs; to diversify ways to operate excess funds of a development-specialised REIT; and, to loosen the time limitation on disposition of domestic housing.

These amendments are expected to continue to affect the K-REIT industry in Korea.



Generally, no.

If 50% or more or the equity of a K-REIT is owned by foreign nationals, the K-REIT would be treated as a “foreigner” for purposes of the Foreigner’s Land Acquisition Act and would be subject to certain reporting/permit requirements for land acquisition and may need to seek prior permission in certain circumstances.


Self-managed REITs have an internal management structure (that must hold certain qualifications). Consigned-managed REITs and corporate restructuring REITs typically outsource their management.


Managers must be qualified and this includes experience requirements (e.g. worked in relevant fields for five years or more) or hold qualifications (e.g. Master’s degree).

Foreign exchange control: • Are there any foreign exchange controls?

Yes. In addition to restrictions on offshore funds investing into Korean real estate, and K-REITs that are treated as a “foreigner” for purposes of the Foreigner’s Land Acquisition Act, capital transactions on investments by non-residents in K-REITs are subject to reporting requirements under the Foreign Exchange Transactions Act.



Deductions are available for corporate restructuring or consigned-managed REITs. This includes where a K-REIT distributes 90% or more of available profits or where a K-REIT pays foreign tax income generated from their foreign investment.


No.


Some. A K-REIT shall be entitled to a 30% deduction of the acquisition tax on real estate acquired before 31 December 2012.


Stamp duty is payable by K-REITs’ property acquisitions and varies depending on the transaction amount.


Withholding tax at 15.4% is withheld and remitted by the payer of interest income.

Identify alternative vehicles/investment structures.Collective real estate investment vehicles compete with K-REITs in Korea.

We would like to thank our correspondent law firm, Kim, Choi and Lim, for preparing the materials in respect of Korea.


8. MALAYSIAWhen was the REIT regime introduced?

Property funds commenced in the 1980s with Amfirst Property Trust Berhad being listed in September 1989 on the-then Kuala Lumpur Stock Exchange (now the “Bursa Malaysia Securities Berhad” - BMSB).


The Malaysian Securities Commission (MSC) is responsible for regulating REITS (M-REITs) in Malaysia. The Securities Commission Act 1993 (SCA) and REIT Guidelines (issued by the MSC) establish the regulatory framework for the establishment, administration and operation of M-REITS in Malaysia. Certain M-REIT proposals require the approval of the MSC.

The REIT Guidelines also prescribe the qualifications of a management company and the trustee, the sale of units in a REIT, the listing of units (if applicable), the authorised investments of an M-REIT, and the pricing of units.

An M-REIT is also governed by a trust deed which constitutes the M-REIT and which incorporates the covenants required under the SCA and the REIT Guidelines. A listed M-REIT must also comply with the BMSB listing rules.


Sunway REIT, listed on 8 July 2010, is the largest REIT in Malaysia with market capitalisation of RM2.68 billion. CapitaMalls Malaysias Trust listed on 16 July 2010.

The revised Guidelines introduced in 2008 afford more flexibility to REIT managers, in particular providing greater investment flexibility in foreign real estate and real estate not wholly-owned or controlled by the REIT. The MSC has also provided measures to strengthen investor protection by promoting higher standards of market conduct.



Foreign ownership of land in Malaysia is statutorily regulated under the National Land Code 1965. The Economic Planning Unit (EPU) also regulates the acquisition of properties by foreigners. Subject to some limited exceptions, prior State Authority approval is typically required for the transfer of any interest in alienated land to a trust where one or more of the beneficiaries is a foreigner. However, in the context of M-REITs, such approval may not be strictly required for the reason that the M-REIT investors do not have a right to the underlying properties. Prior approval of the EPU is not required where the property is acquired by an M-REIT approved by the MSC.


An M-REIT must be managed and administered by a management company approved by the MSC.


Yes. The REIT Guidelines set out the eligibility criteria of a management company. Eligibility requirements include minimum 30% Bumiputera participation.

Foreign investment: • Are there any restrictions on foreign investment in

real estate?

There are no restrictions applicable to foreigners who wish to hold units in an M-REIT.

Foreign exchange control:• Are there any foreign exchange controls?

No.



REITs are exempt from tax on all income provided that at least 90% of their total income is distributed to unit-holders. Otherwise, the REIT will be subject to income tax at the rate of 25%. An M-REIT’s income will also be taxed at the unitholder level.


Companies which own new and/or upgraded existing buildings awarded the Green Building Index (GBI) will be given a tax exemption equivalent to 100% of the additional capital expenditure incurred to obtain the certificate. This can be set off against 100% of the statutory income for each year of assessment (only available for the first GBI certificate issued in respect of the building).


Instruments of transfer of real property from individuals or companies to M-REITs is exempt.


Effective from 1 January 2009 to 31 December 2011, the final withholding tax rate imposed on foreign institutional investors and non-corporate investors, including all individuals and other resident entities, is 10%. The tax rates for non-resident companies (which are not institutional investors), and resident companies is 25% from year of assessment 2009 onwards.


9. SINGAPOREWhen was the REIT regime introduced?

The Monetary Authority of Singapore (MAS) issued regulations governing REITs in 1999. In 2001, qualifying REITs were granted tax transparency treatment – i.e. the REIT trustee is not subject to tax on qualifying income. The first REIT (S-REIT) was listed in 2002.


Trusts investing in real estate are typically established as a business trust (BT) under the Business Trusts Act (BTA) or a recognised/authorised collective investment scheme (CIS) under the Securities and Futures Act (SFA).

Under the BTA, the proposed Trustee-Manager of the BT must apply for the BT to be registered with the MAS. The business operations of the BT are not subject to borrowing limits or operational restrictions.

S-REITs must be approved by MAS to operate under the BTA regime and to be allowed to use the term “Real Estate Investment Trust”.

Funds established as a CIS under the SFA must be authorised and have the trust deed approved by the MAS. Restrictions on the fund’s investment decisions are imposed by the Code on Collective Investment Schemes (CIS Code).


Recent deals include the proposed acquisition by Capital Mall Trust of Clarke Quay for S$268million, the acquisition of Macquarie Prime REIT (renamed Starhill Global REIT) by YTL Corporation Bhd, and AIMS AMP Capital Industrial REIT’s acquisition of four industrial properties and listing of Shari’ah-compliant Sabana REIT on the Singapore Stock Exchange.

The Singapore Code on Takeovers and Mergers and the licensing regime set out in the SFA, now also applies to S-REITs and their managers.



Certain restrictions exist in relation to residential property under the Residential Property Act .


Generally, a fund opting for the BT regime will have a single Trustee-Manager, (a locally incorporated company) with the roles of safeguarding the interests of the trust’s investors and managing the S-REIT.

The SFA requires that a fund established as a CIS has a manager and independent trustee.


Trustee: if a fund is established as an authorised CIS,

the trustee will have to be approved and meet certain requirements including paid-up capital, shareholders funds and compliance systems.

Manager: There is a separate licensing regime for S-REIT Managers under the SFA. The Manager of a fund constituted as a CIS (and listed on the SGX) must hold a capital market service (CMS) license for REIT management (or be exempted under one of the licensing exemptions) where the fund invests only in real estate and real estate-related assets, and comply with the MAS’s Guidelines on Fit and Proper Criteria. An S-REIT Manager must comply with minimum criteria to obtain a CMS license. A representative of the REIT Manager must hold a representative’s license.

Foreign investment: • Are there any restrictions on foreign investment in real

estate?

See “land ownership” above.

Income/profit tax etc:For qualifying S-REITs, distributions to an individual who has not derived income from a Singapore partnership or from the carrying on of a trade, business or profession are exempt from tax in the hands of such unitholders.

Distributions to a non-resident person (other than an individual) without a permanent establishment in Singapore are taxable at the rate of 10% in the hands of such unitholders.

Distributions to a non-resident person (other than an individual) with a permanent establishment in Singapore but who has not used funds from that permanent establishment to invest in the S-REIT are taxable at the rate of 10% in the hands of such unitholders.

In all other cases, distributions are taxable at normal rates.


See above.


See above.


Qualifying S-REITs and wholly-owned Singapore subsidiaries of qualifying S-REITs can enjoy income tax exemption on certain foreign-sourced income until 31 March 2015.


Until 31 March 2015, qualifying S-REITs enjoy stamp duty remission on the transfer of Singapore immovable property and the transfer of 100% of the issued share capital of a Singapore-incorporated company that holds immovable properties situated outside Singapore.

In all other cases, normal stamp duty rules apply. Stamp duty rates for transfers of Singapore immovable property range from 1% to 3%.


See “income/profit, tax etc” above.


10. TAIWANWhen was the REIT regime introduced?

The Real Estate Securitisation Act (RESA) was enacted in July 2003 and amended on 21 January 2009. It permitted establishment of closed-end funds; open-end funds still require regulatory approval.

The RESA allows two structures for REITs in Taiwan:

• Real Estate Investment Trust (REIT): this follows the US model, which requires the establishment of a mutual fund; and

• Real Estate Asset Trust (REAT): this follows the nature of Japan’s special purpose trust.


The regulator for Taiwan REITs is the Financial Supervisory Commission (FSC). A publicly traded REIT must also be approved by the Bureau of Securities and Futures. A REIT that raises funds overseas and invests those funds in domestic real estate must also be approved by the Central Bank of China (Taiwan).

Under the RESA, a trustee creates a REIT or a REAT and may offer beneficiary certificates to investors under a REIT/REAT plan and prospectus. Once established, they may acquire real estate properties and engage in permitted investment activities.

A REIT/REAT must be structured in the form of a trust.

The trustee of a REIT/REAT must be a trust enterprise pursuant to the Trust Enterprise Law, and is responsible for structuring and managing the REIT/REAT. Commercial banks licensed to carry on a trust business are qualified to be REIT/REAT trustees.


The RESA was amended on 21 January 2009, permitting real estate under development to qualify as REIT/REAT assets.


Land ownership:


Foreigners are prohibited under the Land Law from owning certain types of land, however a REIT/REAT will rarely invest in those land types. Most REITs/REATs assets are residential or commercial lands or buildings, which can be owned by foreigners under Taiwanese laws.



External – A professional institution appointed by the trustee.


A Manager is not required to be specially licensed or approved, however the RESA and the Rules Governing the Qualification of Real Estate Management Institution Appointed by Trustee and the Required Provisions to be Set Out in the Mandate (Rules) contain certain requirements, including specifying the Manager must be a corporate, a member of a commerce association and defines the type of enterprise a Manager may conduct, certain minimum capital required, and that the Manager or its major shareholder (holding at least 50% of the shares in the Manager) must have at least three years’ experience in real estate investment or management.

Foreign investment:


A foreigner may invest in beneficiary certificates of a Taiwan REIT after registration with the Taiwan Securities Exchange through a local agent.

A foreign company may establish a Taiwan branch or Taiwan subsidiary to invest in Taiwan real estate directly.



No.


Yes.


The issuance and transfers of beneficiary certificates of Taiwan REITs are exempted from the securities transaction tax. Any distribution made by a Taiwan REIT to its beneficiaries is subject to withholding tax, currently 10% for domestic beneficiaries and 15% for foreign beneficiaries, and will not be included in the consolidated income of the beneficiary. This tax treatment creates significant benefits to the beneficiaries as an individual's marginal tax rate is up to 40%, a domestic corporate entity's is up to 17%, and a foreign corporate entity’s is up to 20%.


Acquisition of real estate is subject to stamp duty.


A Taiwan REIT is required to distribute at least 90% of distributable income to its beneficiaries each year, and the dividends are subject to a flat withholding tax of 10% for domestic beneficiaries and 15% for foreign beneficiaries.


11. THAILANDWhen was the REIT regime introduced?

There is no REIT regime in Thailand, however the Thailand Securities and Exchange Commission (TSEC) has issued draft regulations regarding REITs (Draft Regulations).


Under the Draft Regulations, Thai REITs established in Thailand are subject to the rules of the TSEC and must be listed property trusts. The TSEC has indicated that the regulations will likely be finalised by the end of the second quarter of 2011.

Trusts are regulated by the Trust for Transaction in Capital Market Act B.E. 2550 (2007) (TCMA).


The TSEC has consulted on the Draft Regulations, the aim of which is, among other things, to provide the process for the establishment of Thai REITs and to set out permissible investments for Thai REITs.


Land ownership:


Yes. Subject to the conditions and procedures prescribed in Ministerial Regulations and with the permission of the Minister of the Interior, foreigners may own land. Other foreign land ownership exceptions exist but are subject to not more than 49% of the shares in the company being owned by foreigners.



External. The Draft Regulations require a REIT trustee to appoint a “REIT Management Company”, which cannot be a related party of that trustee.


The TCMA and the Draft Regulations require that a REIT trustee have certain qualifications, including being a commercial bank or financial institution holding a minimum registration amount, and holding a relevant license from TSEC.

A REIT Management Company must hold a license, however as the Draft Regulations are yet to be finalised the criteria for holding such a license have not been settled. In their form at the time of writing, the Draft Regulations require that the REIT Management Company meet certain relevant experience requirements, be approved by TSEC, and not be a related party of the REIT trustee.

Foreign investment:


Yes. There are detailed foreign investment restrictions. These include prohibitions in relation to land trading businesses, hotels and condominium projects.



Thai REITs are not subject to Thai Income Tax since they are not considered to be a tax unit under the Revenue Code.


Pending finalisation.








12. THE PHILIPPINESWhen was the REIT regime introduced?

The Philippine REIT Act (REIT Act) became law in December 2009 and took effect in February 2010. The implementing rules and regulations of the REIT Act were issued by the Philippine Securities and Exchange Commission in May 2010 (REIT Implementing Rules). At the time of writing, the Philippine Bureau of Internal Revenue had yet to issue the regulations on the tax incentives granted under the REIT Act. The regulations will likely be issued in the second or third quarter of 2011.


As of the time of writing, no REIT (P-REIT) has yet been launched in the Philippines. The likely REIT sponsors are awaiting the issuance of the tax regulations on REITs.

A P-REIT must be organised as a Philippine corporation and listed on the Philippine Stock Exchange to be eligible for the tax incentives under the REIT Act.

Upon and after listing, a P-REIT must have at least 1,000 public shareholders (defined in the REIT Act) each owning at least 50 shares of any class, and who, in the aggregate, own at least one-third of the outstanding capital stock of the P-REIT.

As a listed company, the P-REIT is also subject to the disclosure and reporting requirements under the Philippine Securities Regulation Code and the rules of the Philippine Stock Exchange.


Land ownership:


A P-REIT that owns land cannot be more than 40% foreign-owned.



The REIT Act requires the P-REIT manager to be “independent” from the P-REIT and the P-REIT sponsor. Independence requirements will be prescribed in the implementing rules and regulations.


The REIT Implementing Rules contemplate the licensing of the fund manager.

The REIT Act provides certain key requirements for a P-REIT Manager, including that it: must be a Philippines corporation or a foreign corporation engaged in the business of fund management and of proven track record and duly licensed to do business in the Philippines by the appropriate regulatory agency; have minimum paid-up capital stock; comply with certain, corporate governance and independence requirements; and, meet certain

Philippines residency office, and director composition and experience requirements.

Foreign investment:


Only Philippine citizens and corporations or partnerships which are at least 60%-owned by Philippine citizens may own land. Pursuant to this restriction under the Philippine Constitution, the REIT Act provides that a P-REIT that owns land cannot have foreign equity in excess of 40%.



There is no tax exemption at the P-REIT level for the P-REIT’s income/profits. However, the tax base for computing the regular corporate income tax (at 30%) of a P-REIT is smaller than that of an ordinary corporation. A P-REIT is required to annually distribute as dividends at least 90% of its distributable income (which distribution is deducted for purposes of computing the P-REIT’s taxable net income). Hence the P-REIT is effectively taxed on only 10% of its income.


Dividends distributed by a P-REIT are subject to final tax at the uniform rate of 10%, except if the recipient is already exempt from tax on dividends or subject to a lower tax rate under existing laws or applicable tax treaty.

Certain other incentives include an exemption from the 2% minimum corporate income tax and a P-REIT is subject to only 1% creditable withholding tax on income payments received from sales or leases. Ordinary corporations are generally subject to creditable withholding tax at varying rates depending on income payment, for example, the gross selling price for sale of real property classified as ordinary asset is between 1.5% and 5%, and 5% on gross rentals.


A P-REIT is subject to documentary stamp tax (DST) on issuance of listed investor securities (the rate of DST is 0.5% on total par value of shares issued to investor).

The transfer of real property to a P-REIT is subject to only 50% of the DST and registration and annotation fees that would otherwise apply.


Certain types of income are subject to withholding tax. The person making a payment remits the payment to the Government.


13. VIETNAM

When was the REIT regime introduced?

At the time of writing, there was no REIT regime in Vietnam. The concept of a trust does not exist in Vietnam’s Civil Code as it does in many common law jurisdictions. However, given the increasing demand for capital to supplement commercial bank debt for property development, the concept of a REIT structure has been officially included in a proposal prepared by Ministry of Construction in January 2011, and is awaiting the Government’s approval of the Proposal on Housing Development Strategies up to 2020, with a vision to 2030 (The Housing Proposal).

Meanwhile, on 24 November 2010, the Securities Law was amended (Amended Securities Law), with effect as of 1 July 2011, providing a short definition of Real Estate Investment Fund (REIF). Specifically, “Real Estate Investment Fund” means a “securities investment fund which is substantially invested into real estate”.

Although the Amended Securities Law does not provide any specific provisions governing Real Estate Investment Funds, there are already a couple of analogous forms of doing business in Vietnam which can be used for achieving objectives substantially similar to a REIT, as follows:

(i) real estate companies, which are established and operated under the Investment Law, the Enterprise Law, the Land Law, the Law on Real Estate Business (LREB) and the Law on Residential Housing; and

(ii) offshore funds specialising in Vietnam property investments. Some of these structures focus on property investments with recurring income streams, as a REIT would.

Vietnam’s first real estate investment fund, Indochina Land Holding, was announced in 2005 and is an offshore fund managed by Indochina Capital. It has mainly invested in residential, office and hotel projects.


There are currently no REIT-specific provisions in Vietnam, apart from the legislation mentioned above. However, it is worth noting the following points:

Amended Securities Law

• Under the Securities Law, a public fund is not allowed to use more than 10% of its capital and assets to invest in real estate and an open (public) fund is not allowed to invest in real estate.

• Under the Amended Securities Law (effective from 1 July 2011), this limitation of 10% will be withdrawn with respect to REIFs.

• A closed (public) fund is not allowed to invest more than 10% of its total asset value in real estate.

LREB

• Under the LREB, onshore and offshore investors are required to establish real estate companies or cooperatives to develop and/or acquire real properties.


In January 2011, the Ministry of Construction submitted The Housing Proposal for the Government’s approval. The Housing Proposal recommended a number of solutions to solve the constraints on capital mobilisation in Vietnam’s real estate market. Specifically, among other financial suggestions, the Housing Proposal suggested deploying REITs as a mechanism to mobilise capital for Vietnam‘s real estate market.

It is anticipated that once the Housing Proposal is approved, the Government will kick off the process of building a legal framework for REITs in Vietnam.


Title system:


Yes. Vietnam does not have a system of title insurance, and security interests in real estate are not readily searchable in public registries.

Land ownership:


Yes. Foreign entities incorporated abroad are not allowed to own land use rights in Vietnam.

Foreign-owned companies established in Vietnam can only lease land from the State or receive a contribution of land use rights from a Vietnamese member/shareholder in order to acquire land use rights in Vietnam.


In Vietnam, fund management companies must be registered with the State Securities Commission (SSC).


External. The Manager and the fund should be independent entities.


Yes. The Manager must obtain the operating license issued by SSC, meeting certain requirements including a minimum capital level, a 20% founding shareholder stake to be held for three years, that Manager directors and at least five other employees must be licensed as fund managers by the SSC, and must hold minimum experience and qualification requirements.

Foreign investment:


Yes. Under the LREB foreign-owned companies are not allowed to buy or lease existing domestically-owned properties for resale or sub-lease purposes. They are allowed to develop, own and sell real property in Vietnam. Other restrictions are covered in “land ownership” above.


income/profit tax etc:

Vietnamese investments of offshore incorporated funds are subject to various domestic taxes.

For domestic securities investment funds, the fund itself is not subject to enterprise income tax. However, corporate investors pay 25% enterprise income tax on distributed profit (with exemption for income taxed at the investee companies) and individual investors pay 5% personal income tax.


No.


For offshore funds, there is no tax pass-through to the investors. For domestic securities investment funds, see above.

• Are there any other tax incentives for REIT?

There is no tax incentive for income from transfer of real estate and income from asset leasing.


Not applicable.


Not applicable.


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Background, Respondents Profle and Survey Results sections ©The Trust Company 2011. All rights reserved.

Country Summary and Legal Update sections ©Baker & McKenzie 2011. All rights reserved.

The Country Summaries and Legal Update in this Survey have been prepared by Baker & McKenzie offices in each jurisdiction named in this Survey, except for Korea and India, which were prepared by our correspondent law firms Kim, Choi and Lim (in respect of Korea), and Economic Laws Practice (in respect of India).

This Survey has been prepared for clients and professional associates of Baker & McKenzie and The Trust Company. Whilst every effort has been made to ensure accuracy, no responsibility can be accepted for errors and omissions, however caused. The information contained in this publication should not be relied on as investment, taxation or legal advice and should not be regarded as a substitute for detailed advice in individual cases. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this Survey is accepted by individual authors, Baker & McKenzie or The Trust Company. If advice concerning individual problems or other expert assistance is required, the services of a competent professional adviser should be sought.

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The law is stated as at March 2011, unless otherwise indicated.

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