Unilever House, the new home of Unilever Thailand on Rama IX Road in Bangkok, is one of the underlying properties of the SET-listed GLANDRT. (Grand Canal Land Plc photo)

Since their introduction in 2014, real estate investment trusts (REITs) have drawn a strong response from investors and played an increasingly important role in the country’s real estate scene, according to the international property consultancy JLL.

"Even in their infancy, REITs have received strong interest from investors, be they high net worth investors, mutual funds and insurance companies," said Sarun Kunakool, senior manager of JLL Research and Consultancy at JLL.

The popularity is due to relatively high and stable dividend yields they offer and a lack of attractive investment alternatives in the current situation where equity markets remain relatively volatile and returns from fixed income and deposits remain unappealing, he said.

"This listed property vehicle also provides investment exposure into real estate sectors such as office and logistics, which may not be accessible via ordinary shares," he added.

Following the Impact Growth REIT, Thailand’s first listing in 2014, around 13 REITs with a combined value of over 69 billion baht have been listed or converted from property funds to date, with GLAND Office Leasehold Real Estate Investment Trust (GLANDRT) being the latest listing.

Established by Grand Canal Land Plc through its affiliate G Land REIT Management, GLANDRT contains two office buildings: the Ninth Tower and U-Place, with a combined value of over 5 billion baht. The new REIT has drawn keen interest, reflecting the strong appetite for REITs with office exposure.

While more REITs will be established, several existing property funds will likely be converted to REITs to enjoy more favourable rules and other benefits. Among the publicly known upcoming conversions is CPN Retail Growth Leasehold Property Fund (CPNRF), Thailand’s largest and most liquid property fund. Its conversion is scheduled late this year. 

Property funds, which primarily aim to allow failed companies to offload property assets, were first introduced after the 1997 financial crisis. However, their adoption and popularity remained limited until 2005, when CPNRF and Ticon Property Fund (TFUND) were listed to great interest. With the introduction of REITs, the property fund structure has been discontinued.

"REITs give developers and investors a more attractive alternative to property funds," said Mr Sarun. He explained that the new property investment vehicle provided a number of advantages over property funds, including greater flexibility in the type of real estate assets that REITs are allowed to invest in, higher financial leverage and the ability to directly invest up to 10% of total assets in greenfield projects. 

REITs also represent an attractive vehicle for developers to divest assets. For example, Golden Ventures REIT (GVREIT) allowed Golden Land and Univentures to divest Sathorn Square and Park Ventures, respectively. 

"One key drawback is that all REIT unit holders are subject to tax, whereas foreign and institutional holders of property funds are generally tax-exempt. However, the flexibility of greater financial leverage can help boost prospective yields for REITs, helping offset a higher tax rate," said Mr Sarun.

"The future of REITs in Thailand remains bright, given the added flexibility that REITs offer over the now-defunct property funds. We expect investor interest in REITs to continue to grow," he concluded.