JLL calls on Sri Lanka to allow REIT investments
Real estate consultancy Jones Lang LaSalle (JLL) has called on Sri Lanka to review the regulatory framework for Real Estate Investment Trusts (REITs). Current restrictions on foreign ownership of property are a significant barrier to investment in the country, but JLL has said REITs could provide a solution, allowing property investment without transferring the title of an asset to foreign investors. The trusts were created in the USA in the 1960s, and allow investors to take a diversified stake in real estate.

Sept 18, 2017 (LBO) – Jones Lang LaSalle (JLL) has called for a re-evaluation of the regulatory and legal mechanisms around Real Estate Investment Trusts (REITs) as a vital first step towards their introduction into the Sri Lankan market.

“In a global context, REITs have become an integral part of the investment landscape, accepted by individual and institutional investors, alike, as providing greater access to commercial real estate projects,” JLL said.

In Sri Lanka too, the potential benefits to the domestic economy from the introduction of REITs are significant, the real estate consultancy said.

“Their introduction will likely signal stronger economic growth and job creation, but, moreover, REITs provide a platform for much needed foreign direct investment in Sri Lanka without transferring the ownership of the real estate asset to the foreign investor,”

“Given the current regulations around foreign ownership, we believe that REITs are one of the most viable mechanisms for attracting investment into Sri Lanka’s commercial real estate sector.” JLL observed.

However, they say that prior to the introduction of REITs to the domestic market, significant reforms would be necessary in relation to Sri Lanka’s legal and regulatory frameworks in order to ensure sufficiently robust safeguards and procedural mechanisms to enable a secure foundation for REITs to flourish.

“Establishing REITs in a new market depends heavily upon support from local regulatory bodies and authorities including the implementation of a Unit Trust Code, but there also needs to be an efficient and stable tax regime in place to instill confidence in investors,”

“In addition to transparent taxation policies, that are required to be applied in an equitable fashion, there is a need for certain limited tax concessions to stimulate yields and make REITs more attractive.”

Several studies have shown that the socio economic benefits provided by REITS outweigh any losses in tax revenue, and supportive policies, along with international standards of corporate governance are essential to entice foreign investors who are, in turn, the lifeblood to the longer term prosperity of REITs in the country.

Current restrictions on foreigners owning land in Sri Lanka have been a significant hurdle to foreign capital inflows in Sri Lanka, however JLL noted that if regulations were enacted to help mitigate these challenges while still ensuring that the title of a given property is not directly transferred to a foreign investor, then a significant obstacle to the establishment of REITs in Sri Lanka would have been cleared.

First established in the USA in 1960, REITs are widely regarded as investment vehicles that democratize real estate ownership, enabling retail investors to take a diversified stake in real estate, something that they, in all probability, could not achieve as individual investors.