New Zealand Real Estate Investment Trusts
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In contrast with every other country with Real Estate Investment Trusts, New Zealand has not created legal REITs with one specific law. Therefore, these technically are not New Zealand Real Estate Investment Trusts. However, some companies use other existing business structures to achieve the same end. That is, creation of a "flow through" entity engaged in the business of real estate without the obligation to pay corporate income taxes.
This has been possible since either 1969 or 1971. I've seen both dates given.
Unit Trusts as Real Estate Investment Trusts in New Zealand
Unit trusts can invest in real estate. These are regulated by the trust deed. Investment by investors outside New Zealand may require consent by the Overseas Investment Office. Unit trusts are generally taxed as companies at the prevailing corporate tax rate, whether they're listed or unlisted.
Investing in real estate does not qualify unit trusts for any special tax considerations.
For individual tax purposes, the distributions of unit trusts are treated the same as dividends from corporations. Under some circumstances, however, some of the amounts distributed are considered as returns of unit capital or on buybacks of units, and therefore may be excluded from treatment as dividends, and therefore are not taxable in New Zealand.
A non-resident withholding tax (NRWT) of 30% is applied to distributions to unit owners outside New Zealand.
Portfolio Investment Entities - PIEs as New Zealand REITs
As of October 1, 2007 businesses may choose to be Portfolio Investment Entities (PIE). PIE characteristics include:
Flow-through (income not taxed at this level)
Broad passive investment categories
Various eligibility criteria
May include listed or unlisted unit trusts, group investment funds, superannuation (similar to US IRAs) funds or companies may qualify
There are restrictions on leasing land from a person associated with the PIE (an obvious attempt to prevent conflicts of interest.)
90% of portfolio must be passive, and other restrictions apply
For PIEs listed on the New Zealand Stock Exchange, distributions are taxable to the extent they have New Zealand imputation credits attached.
Foreign owners of PIE shares are also subject to the 30% non-resident withholding tax.
Limited Partnerships as New Zealand Real Estate Investment Trusts
As of May 2, 2008 companies may choose Limited Partnerships (LP). LP characteristics include:
They must have at least one general partner and limited partner. Basic.
The limited partner's liability is limited to their investment in the partnership. Again - basic.
Listed LPs and some foreign LPs are treated as companies, therefore with no flow-through.
From what I've learned, in New Zealand they have less short term debt, do not invest in mortgage-backed securities, use less leverage (or gearing) and do not invest in real estate properties outside New Zealand. Unlike their close neighbors in Australia, they do not use stapled securities, but rely on their property investments. They generally focus on commercial real property.
New Zealand REIT Equivalents
- Argosy Property Trust -- third largest listed in New Zealand
- Epsilon International Property Group
- Kiwi Income Property Trust -- many retail and office properties
- Kermadec Property Fund Ltd -- centered on Auckland properties
- Redwood Group Ltd
- Rural Equities
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