On 27 January 2014, the SFC commenced a one-month consultation on proposals to amend the Code on Real Estate Investment Trusts (REIT Code) to introduce more flexibility in the investment scope of real estate investment trusts.
The SFC proposes to allow REITs to undertake property development investments and related activities, subject to a maximum threshold of 10% of the REIT's gross asset value (10% GAV Cap). The SFC also proposes to allow a REIT to acquire vacant land (subject to the 10% GAV Cap) provided that the REIT manager can demonstrate that such acquisition is part of a property development project within the investment objective or policy of the REIT. The properties completed under such property development projects are subject to a minimum two-year property holding period requirement.
It is proposed that (subject to certain diversification and liquidity requirements) a REIT may invest in financial instruments such as listed securities, unlisted debt securities, government and other public securities and local or overseas property funds. However, at all times at least 75% of the gross asset value of a REIT must be invested in real estate that generates recurrent rental income.
REIT managers should ensure compliance with the ongoing disclosure and reporting requirements under the REIT Code. The REIT managers must also have sufficient and appropriate skills, resources, risk management processes and controls in place to manage and monitor the investments and associated risks.
The consultation ended on 26 February 2014.