Naeem Holding for Real Estate Investment is preparing to launch several Real Estate Investment Trusts (REITs) by the beginning of 2016 to take advantage of the expected activity in the real estate sector stimulated by the recovery of the political situation, according to Managing Director, Alsherif Wahdan.
Wahdan, who is responsible for real estate funds file, said the Egyptian real estate market is expected to recover, driven by the growing demand and the weak supply. However, he added, expansion of real estate funds is subjected to changing tax policies that govern the operation of such funds.
What are your plans for the next stage?
Naeem Holding is currently focused on launching several real estate investment trusts. They will be released in the market during 2016. The market needs similar means of investment tools that maximise the return on the funds of individuals wanting to invest in huge real estate projects.
REITs are an unconventional tool to mobilise the savings of individuals and direct them to investment for its nature of being based on trade, investment, and increasing assets for the purpose of profit distribution to certificate holders.
But the Internal Statute of REITs has been available for more than a year and a half and the market didn’t see any trusts?
Yes, the Internal Statute organising REITs operation has been available for more than one and a half years, however, REITs Activity is an embryonic activity that requires incentives for starting and expanding and attracting the attention of investors. This has not happened yet, as the current tax policies hinder the expansion of such funds’ activity.
The recent dividend tax estimated at 10% and imposed by the government under its policy of reform of the tax, burdens the funds and lowers their economic viability. REITs are of a special nature that differs from the real estate development companies, which obtain a piece of land to develop and then sell. Those companies are not bound to distribute revenues on contributors, unlike the investment nature of REITs that is based on prospectus.
The abolition of dividend tax will increase the growth of REITs opportunities and will accelerate the entry of many companies into this activity. You should bear in mind that the market was not yet prepared during the last period for REITs, as the political system was still not stable.
Are there any consultations with the government to cancel the tax?
Naeem Holding is already communicating with the concerned entities, such as, the Ministry of Finance to reduce the dividend tax or consensus on a formula that allows the growth of REITs activity. Taxation of REITs needs a comprehensive review. The government has to look at investment norms abroad governing the work of REITs without burdening corporations with tax.
Is Naeem Holding mortgaging its real estate funds to eliminate dividend tax?
No, we do not to stipulate setting up REITs to eliminate dividend tax. Naeem Holding will continue the establishment procedures. Discussion to choose the real estate development company that we will cooperate with is ongoing. We will adapt to market conditions and legislation governing such activity.
However, I want to emphasis and advise the government and the Ministry of Finance to keep in mind that the current tax policies will not make trend in the activity of real estate investment trusts and hinders opportunities of their spreading.
Real Estate Investment Trusts are committed to providing prospectus and rules of distribution of profits, while the joint-stock companies have multiple options in deportation or distributing profits.
What are the advantages of REITs, compared to real estate development companies?
REITs effectively contribute to mobilising savings by the virtue of its investment activity that is based on the purchasing of assets for the purpose of trade and distribution of their revenues to certificate holders to ensure the speed of rotation of capital and provide returns to certificate holders without abandoning assets.
Real estate development companies develop a piece of land to build housing units of various kinds and then sell them along with the assets. They can simply choose not to distribute revenues among shareholders and deport them for the purpose of expansion.
REITs grant individuals of all levels the opportunity to create equal opportunities for investment by participating in giant real estate projects that cannot be set up by one person only.
Are there any investment opportunities that you are currently monitoring?
Yes, the company is currently examining several investment opportunities that will come under the new REIT management scheme launched during the next phase. Those opportunities are distributed between residential and administrative units as well as hotels to ensure the diversification of this portfolio to secure a decent return for certificate holders of the fund.
Does the Internal Statute of REITs include any items that require amendments?
The Internal Statute obliges us to close all REITs, which is an investment pattern that only suits institutions – not individuals. The fund will be of a fixed term, after that it must be cancelled, making it difficult to exit the fund. We urge concerned authorities to allow REITs to be open and without fixed terms.
How do you see the real estate tax?
The real estate tax will inevitably contribute to increasing the supply of housing units for the purpose of rent. The past few years have seen many individuals buying more than one unit each, and closing them. However, the real estate tax will force them to rent those units to pay it off, which will increase the supply of units for the purpose of rent that may lower the prices.
What about your expectations about the future of real estate investment?
Demand for property in Egypt is still very strong and will raise more as the economy recovers, and increasing rates of economic growth, which is reflected in more individuals and companies buying residential, administrative and commercial units. Egypt is a huge consumer market and it is still promising and cheap compared to neighbouring markets.
I wonder about the frequent complaint of real estate developers of land shortage, demanding the government to provide land when they own underdeveloped lands. Developers have a huge bank of lands up to now.
I see that the government put up higher prices for lands during the last period. This may threaten an inflationary wave, which will be paid for by consumers passed by developers. I think the government should reconsider its policy of pricing lands.