Regulating Real Estate Investment Trusts (REITs)

Benefits and Frameworks

The Government of Malta is currently developing a new legislative framework in order to regulate Real Estate Investment Trusts (REITs), that will provide the local market with a new investment vehicle that would permit access to the real estate market. The intention to launch a REITs framework was announced during the Budget for the year 2019. The aim is for REITs to be structured as public limited companies (plc’s) listed and freely traded on a recognised exchange.

A REIT generally consists of a company that owns and manages a portfolio of immovable property on which rental income is received. Shareholders investing in REITs would expect to receive dividends generated through the rental income.

REITs Worldwide

REITs were first established during the 1960s, after the US Congress launched a regime that provided investors with the possibility of purchasing shares in portfolios consisting of commercial property such as warehouses, apartments, healthcare facilities, data centres, retail centres, offices and hotels.

Currently, over 35 jurisdictions worldwide have established some form of a regulatory framework for REIT structures. A REIT structure may consist of a sector-specific REIT, which involves investing in one individual real estate sector, for instance, offices, retail properties, residential properties or industrial properties. On the other hand, a REIT legal regime may permit a more diversified portfolio, that holds both retail and residential real estate properties. A REIT structure may also be set up to provide for a social function, whereby a REIT would own/manage homes for the elderly, hospitals, or social housing amongst other similar real estate. Furthermore, a REIT structure could be used as an alternative financing option for a social cause, which would benefit the community, while shareholders are guaranteed to receive a high percentage of yearly dividends. Thus, REITs can provide a solution to communities seeking funding for social purposes and offers investors the possibility of investing in immovable property projects benefitting a social cause.

The Benefits of REITs

REITs are considered beneficial since they are managed by professionals committed to presenting investors with the best performing properties on the market, which benefit shareholders as well as tenants who rent the properties. REITs provide retail and professional investors with the opportunity to further diversify their portfolio of assets.

A REIT framework allows investors who do not have sufficient capital to purchase property themselves to invest in the property market. Investors would benefit from this framework by gaining access to Malta’s flourishing property market. Shareholders who invest in the real estate market through a REIT benefit from exposure to a range of properties as opposed to risks faced when owning one single entire property.

REITs might benefit from beneficial tax treatment which in turn supports the development of major real estate projects and supplies liquidity to the real estate market which by nature tends to be relatively illiquid. REITs also provide real estate projects with an alternative to traditional means of raising capital.

Most REIT legal frameworks require REIT companies to be listed on a recognised and regulated stock market, which provides investors with additional safeguards, since listed companies are required to abide by stringent transparency and reporting requirements. Additionally, the European Public Real Estate Association established their own guidelines on what is considered to be best practises, to further enhance reporting disclosures, public reporting and transparency requirements.

By implementing such a framework, Malta shall join the other 14 EU Member states that have already adopted a legislative framework for REITs. This legislative framework has been much anticipated due to the current boom in real estate in the Maltese islands, which will result in various attractive investment opportunities.