The State Securities Commission (SSC) has suggested easing regulationsin the hopes of developing the investment tool of Real Estate InvestmentTrusts (REIT), which have been officially permitted in Vietnam sinceSeptember 2012, but no such funds have been launched so far due to tightrestrictions.
REITs are a popular investment in developedcountries. By purchasing REIT fund certificates, investors can invest inreal estate assets without having to buy property.
The fundswere expected to provide a new channel to raise funds for the realestate market and help reduce real estate-related bad debts in banks.
However, current regulations do not allow real estate companiesor property owners to contribute property to the funds. The rules alsoprohibit the funds from borrowing more than 5 percent of its net assetvalue after its establishment.
Fundraising in recent years hashovered around 50-100 billion VND (2.3-4.7 million USD), much lower thanthe real value of properties. The lack of capital further impedes fundsfrom seeking investment opportunities. Moreover, unlike laws in othercountries, the law includes no preferential tax policies for real estatefunds, such as tax exemptions.
Property prices in big citiesremain high while rents of office and retail centres will likelycontinue their downward trend. This not only negatively affects profitsof the leasing segment, but also makes financial institutions and realestate companies and investors less interested in REITs.
In aneffort to promote REITs, the SSC's Fund Management Department said thecommission has plans to change Circular 228, which guides theestablishment and management of real estate investment trusts, thisyear. Contribution of property to REITs would likely be allowed.
To do this, sponsors must register to contribute property that theyown, such as shopping malls, apartments or hotels, to the real estatefund management company. Then the property must be approved by the fundmanager and its value and business prospects must be evaluated. Finallythe property must be issued a valuation certificate and published in theprospectus of the fund.
Assets of the fund are separate fromthe assets of the fund management company. Ownership of contributedproperty will be transferred to the real estate fund and sponsors willreceive cash or fund certificates for their contribution. The fundmanager will register listing and trading of fund certificates on thestock market. In addition, the authority will also consider introducingthe accounting method and preferential tax policies for real estatefunds in line with international practice.-VNA
REITs are a popular investment in developedcountries. By purchasing REIT fund certificates, investors can invest inreal estate assets without having to buy property.
The fundswere expected to provide a new channel to raise funds for the realestate market and help reduce real estate-related bad debts in banks.
However, current regulations do not allow real estate companiesor property owners to contribute property to the funds. The rules alsoprohibit the funds from borrowing more than 5 percent of its net assetvalue after its establishment.
Fundraising in recent years hashovered around 50-100 billion VND (2.3-4.7 million USD), much lower thanthe real value of properties. The lack of capital further impedes fundsfrom seeking investment opportunities. Moreover, unlike laws in othercountries, the law includes no preferential tax policies for real estatefunds, such as tax exemptions.
Property prices in big citiesremain high while rents of office and retail centres will likelycontinue their downward trend. This not only negatively affects profitsof the leasing segment, but also makes financial institutions and realestate companies and investors less interested in REITs.
In aneffort to promote REITs, the SSC's Fund Management Department said thecommission has plans to change Circular 228, which guides theestablishment and management of real estate investment trusts, thisyear. Contribution of property to REITs would likely be allowed.
To do this, sponsors must register to contribute property that theyown, such as shopping malls, apartments or hotels, to the real estatefund management company. Then the property must be approved by the fundmanager and its value and business prospects must be evaluated. Finallythe property must be issued a valuation certificate and published in theprospectus of the fund.
Assets of the fund are separate fromthe assets of the fund management company. Ownership of contributedproperty will be transferred to the real estate fund and sponsors willreceive cash or fund certificates for their contribution. The fundmanager will register listing and trading of fund certificates on thestock market. In addition, the authority will also consider introducingthe accounting method and preferential tax policies for real estatefunds in line with international practice.-VNA
