REITs operating mode: international experience and system selection -Part 8

Si Gyeongmin

Oct 03, 2021

3. The regulation of REITs has developed from strict to loose

At first, Asian countries (regions) generally held a cautious attitude towards REITs, and REITs must follow strict procedures and rules from the establishment to operation. This limits the development of REITs to a certain extent. Recently, with the gradual maturity of the REITs market and the consideration of stimulating markets that have been hit by the financial crisis, Asian countries (regions) have shown an increasingly looser regulation of REITs.

One is the gradual increase in tax incentives. In the first few years when Japan launched REITs, the development of REITs was slow due to the downturn in the real estate market and people's lack of awareness of REITs. Until the beginning of 2007, with the modification and improvement of the J-REITs tax system, REIT investors enjoyed greater tax incentives and stable investment returns, and the J-REITs market began to develop rapidly. Similar to Japan, Singapore, and other Asian countries (regions) have successively lowered the tax rates of REITs products.

The second is to allow REITs to invest overseas. Since the end of 2007, affected by the subprime mortgage crisis in the United States, the number of IPOs and market value of J-REITs in Japan have fallen sharply. In May 2008, the Tokyo Stock Exchange (TSE) issued new regulations allowing J-REITs to invest in overseas real estate. The purpose of this is just as the REIT analyst, Merrill Lynch in Tokyo, believes: "This is not necessarily to promote cross-border investment. The Ministry of Land, Infrastructure, Transport and Tourism hopes to make the framework of J-REITs as close to international standards as possible from a long-term perspective."

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