Tax reforms in Indonesia and Thailand show that Asian governments are warming to the idea of real estate investment trusts (REITs) as a tool to develop their economies and infrastructure.
“The near simultaneous announcement of REIT tax concessions” in both countries “demonstrates that governments in Asia are latching onto the nation-building power of REITs,” said Peter Verwer, chairman of the Asia Pacific Real Estate Association (APREA).
Indonesia’s decision to remove double taxation for REITs and impose one single taxation system – rather than its current separate dividend and property sales taxes – will make the domestic REIT market more attractive for listing, he said.
This comes in addition to the lowering of revaluation gains tax, which would make it cheaper for firms to revalue assets if they want to go public or issue debt.
Several companies have expressed interest in setting up new funds or shifting REITS to Indonesia from other markets following the announcements, Verwer said.
Indonesian conglomerate The Lippo Group plans to shift two REITs from Singapore to Indonesia in order to benefit from tax breaks offered by the Indonesian government.
Besides lauding the new tax incentives, the company has said that it plans to increase the portfolios of two Singapore-listed REITs – Lippo Malls Indonesia Retail Trust and First Real Estate Investment Trust – by nearly three-fold within the next three to four years.
Meanwhile, the Thai government has also announced similar tax incentives in a move aimed to develop the domestic REIT market.
The Thai authorities have announced REIT tax concessions in the form of a waiver on taxes applied to REIT conversions and also a waiver on personal unitholder taxes. These incentives are effective until 31 December 2017.
The new measures give REITs an advantage over more traditional Thai property funds, particularly in relation to gearing and capital management opportunities, said Verwer.
“This would pave the way for more conversions from property funds to REITs,” he said.