China's tax policy holding back reit growth

The mainland must streamline its tax regime for publicly traded real estate investment trusts (reits) for them to gradually take off despite near-term unfavourable conditions, industry experts said.

Beijing now lags behind New Delhi in finalising a regulatory framework for such listed entities that mainly invest in income-producing real estate assets.

Globally, reits exist in more than 30 countries, led by the United States, and raised more than US$20 billion last year.

For emerging powerhouses like China and India, tax policy remains a key issue as it will determine the pace of growth and eventual size of the new markets.

"China's real estate [sector] is quite heavily taxed and it is a key component of local and state revenue," said John Timpany, a tax partner at KPMG in Hong Kong.

"To make [reits] successful, the tax system needs to be simple and clear to investors," he told the South China Morning Post. Another KPMG tax partner, Christopher Xing, said publicly traded reits need to be at least tax neutral, and sweeteners could include additional tax credits or exemptions on spinning off real estate assets to reits.

Mainland property companies pay land appreciation tax on taxable gains of 30 to 60 per cent, corporate income tax of 25 per cent, and other taxes on rental incomes including business tax of 5 per cent, real estate withholding tax of 12 per cent and stamp duty of 0.1 per cent.