Can Real Estate Investment Trusts (REITS) provide new options for real estate finance in Malta?
As part of the 2019 budget, the government has pledged to introduce a Real Estate Investment Trust (REIT) framework in Malta. This could provide a positive development for the financing of projects within the real estate sector in Malta.
What are Real Estate Investment Trusts?
Real Estate Investment Trusts (REITs) are companies who own and manage various types of properties. These companies earn regular income through rental of these properties which is then distributed to shareholders in the form of regular dividends.
The companies also offer investors the potential to gain from long term appreciation of properties with the company’s portfolio. A number of countries across the world have put REIT regimes in place, allowing investors to benefit from the features of the structure. This includes around 14 countries within the EU, including the UK Germany, France and Italy. REITs are generally required to be publicly listed companies.
Benefits of REITs
While REIT regimes vary from country to country, the structure delivers a number of common benefits. The main benefit of the structure is that it allows investors a tax efficient way to invest in real estate projects, including large-scale projects in which they would otherwise not be able to invest.
This allows for greater liquidity within the real estate sector, with investors also able to achieve greater diversification. This also opens up real estate investments to more investors, including both professional and retail investors, increasing financing options for real estate projects.
Real Estate Investment Trusts are generally required to distribute a large proportion of their earnings to shareholders through dividends. This allows investors to earn regular returns from real estate without the hassle of owning and managing physical property.
The significant scale REITs tend to allow for the companies to have more dedicated resources providing professional management of properties, benefitting both investors and tenants. This scale also allows Real Estate Investment Trusts to finance projects in a more effective manner and provide stable financing for projects being undertaken.
Being listed entities, REITs also provide investors more regular, transparent disclosures. In addition, the European Public Real Estate Association (EPRA), a prominent organisation within the European publicly traded real estate sector, has issued best practice recommendations which have been adopted by a larger number of REITs, allowing for further reporting disclosures over and above public reporting requirements.
Types of Real Estate Investment Trusts
REITs generally focus on specific real estate sectors, using sector expertise to improve properties and provide robust returns to investors. These sectors would include offices, retail properties, industrial properties and residential properties. Some REITs may take the form of diversified Real Estate Investment Trusts, which own properties across various sectors.
A number of specialised REITs have also served to promote investments having social benefits. This includes REITs owning healthcare related real estate, such as GP practices, medical centres, hospitals and elderly care homes, which have helped support communities. REITs have also offered innovative options for the financing of social housing stock in different countries.
While details of the REIT regime to be implemented in Malta have yet to be announced, the introduction of this framework can bring about a number of benefits. These include easier access to real estate investments for a wider investor pool, improved transparency to investors and more professional property management. REITs can also act as vehicles to support investments which bring about a social benefit too.