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REITs needed to lure foreign capital
Businesses need to study different capital mobilisation forms that have been applied successfully around the world - Nguyen Manh Ha Director of the Housing and Real Estate Market Management Agency
Property experts have claimed real estate investment trusts could help draw in huge foreign direct investment inflows for Vietnam. VREIT Management chief Hoang Nguyen said there was still plenty of idle investment capital beyond Vietnam’s borders and setting up real estate investment trusts (REITs) would be a great way to attract capital into the country.
Nguyen Manh Ha, director of the Ministry of Construction’s Housing and Real Estate Market Management Agency, said the Vietnamese market suffered from a serious shortage of investment capital and developers needed to look beyond bankers to source new cash.
He said REITs were a good solution to mobilise capital. REITs are investment vehicles that invest in a diversified pool of professionally managed real estate assets. The REIT label is a tax designation for any corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90 per cent of their taxable income into the hands of investors.
“The REIT model is popular for real estate investment in the US. The trust is based on the reputation and experience of businesses and the legal framework protects investors buying REIT certificates,” Ha said. A new capital source also derived from the issuance of real estate bonds and shares, which could benefit firms, said Ha.
“To raise capital from issuing bonds and shares, businesses need to have at least one year of operation [under their belt] and be profitable. In addition, according to experts, businesses need to study different capital mobilisation forms that have been applied successfully around the world,” he added.
However, Vietnam still lacks a legal framework for setting up such trusts. “This [investment capital] from international funds is a good opportunity which Vietnam has so far failed to utilise,” Nguyen said. He added a pilot REIT model needed to be set up to give the real estate market another avenue to create capital resources.
Properties invested by REITs could be reserved for lease or sale to workers or professionals.
Nguyen said REITs had grown exponentially in Asia since they were first introduced in 2001.
However, apart from the lack of legal framework, there are other barriers for REITs in Vietnam. These include the high levels of volatility and poor levels of transparency in the securities market.
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