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13-11-15, 20:52
http://www.businesstimes.com.sg/real-estate/whats-real-estate-depends-on-who-you-ask
What's real estate? Depends on who you ask
MAS does not prescribe what constitutes "real estate" in the portfolios of Reits and business trusts
By Lee Meixian
[email protected]
@LeeMeixianBT
NOV 6, 2015
WHAT is real estate?
Are data centres real estate? What about fibre optic networks, cell towers, and energy infrastructure? Outdoor billboards, gaming facilities, timberland and prisons? These are the kinds of assets that have been "reited" in real estate investment trusts in the US in recent years.
Turns out, the answer to that question depends on who you ask. Everyone has a different definition.
The wide variety of assets going into US Reits might have to do with the very broad official definition of the term there.
The US Internal Revenue Service defines "real property" as land or improvements on land, such as buildings or other inherently permanent structures. This allows for nearly anything.
In contrast, Singapore's regulator, the Monetary Authority of Singapore (MAS), does not prescribe what constitutes "real estate" in the portfolio of Reits and business trusts, although it generally expects to see land and buildings in Reits, while the assets in business trusts can be more extensive.
It is prepared to engage the industry on a case-by-case basis, so new players looking to list unusual types of assets can engage lawyers who can then write to MAS with their justifications on why a certain type of asset should be "reitable". MAS has to approve before a deal can proceed.
Asked how he would define "real estate", Peter Verwer, CEO of Asia-Pacific Real Estate Association, likened it to counting the number of angels dancing on the head of a pin - a futile discussion.
"It is a debate that is going to end up more boring than discussing the internal/external management structure for Reits," he said.
When pressed, it turns out that he is actually very liberal in the type of assets he includes under the banner. What helps is that he first creatively re-defines these assets to better reflect their true nature.
For example, if you define airports as shopping centres with runways, then they're real estate.
"Prisons are hotels you can't leave until your term is up. Oil rigs are also real estate, because they sit on land that is covered by water," he said. Incidentally, the US Internal Revenue Service does include the water space directly above the seabed as land.
Mr Verwer said: "What makes them real is that they are a bundle of rights to a property that can be mobilised to generate income streams. Real estate provides a bunch of income streams. They are in the business of securing occupants to provide those income streams."
And these occupants don't always have to be people. He described how the billboards along the highways of India, which can be as big as buildings, derive their rental income from advertisements. There are also warehouses that store furniture, document storage facilities that store archived documents, data centres that store data.
Teo Wee Hwee, real estate tax leader at PwC Singapore, also considers solar power plants as real estate. He said: "When you look at solar panels, you don't see what goes underground. Apparently it's all connected by grids. So it is real estate, because it's fixed to the ground."
Matthias Meyer, Deutsche Bank head of liquid real assets for Europe & Asia, global client group, however, prefers to draw a more distinct line between real estate and infrastructure.
To him, real estate is easily changeable from a tenant's point of view. Developers can always build more of a type of real estate and steal tenants over with better rates.
Infrastructure, on the other hand, is more monopolistic. A region only needs one airport, for instance. Infrastructure is also much more regulated than real estate, and tenants - say, telcos renting antenna space on a mobile tower - are less likely to move because they need continuity when providing a service to the public.
What's real estate? Depends on who you ask
MAS does not prescribe what constitutes "real estate" in the portfolios of Reits and business trusts
By Lee Meixian
[email protected]
@LeeMeixianBT
NOV 6, 2015
WHAT is real estate?
Are data centres real estate? What about fibre optic networks, cell towers, and energy infrastructure? Outdoor billboards, gaming facilities, timberland and prisons? These are the kinds of assets that have been "reited" in real estate investment trusts in the US in recent years.
Turns out, the answer to that question depends on who you ask. Everyone has a different definition.
The wide variety of assets going into US Reits might have to do with the very broad official definition of the term there.
The US Internal Revenue Service defines "real property" as land or improvements on land, such as buildings or other inherently permanent structures. This allows for nearly anything.
In contrast, Singapore's regulator, the Monetary Authority of Singapore (MAS), does not prescribe what constitutes "real estate" in the portfolio of Reits and business trusts, although it generally expects to see land and buildings in Reits, while the assets in business trusts can be more extensive.
It is prepared to engage the industry on a case-by-case basis, so new players looking to list unusual types of assets can engage lawyers who can then write to MAS with their justifications on why a certain type of asset should be "reitable". MAS has to approve before a deal can proceed.
Asked how he would define "real estate", Peter Verwer, CEO of Asia-Pacific Real Estate Association, likened it to counting the number of angels dancing on the head of a pin - a futile discussion.
"It is a debate that is going to end up more boring than discussing the internal/external management structure for Reits," he said.
When pressed, it turns out that he is actually very liberal in the type of assets he includes under the banner. What helps is that he first creatively re-defines these assets to better reflect their true nature.
For example, if you define airports as shopping centres with runways, then they're real estate.
"Prisons are hotels you can't leave until your term is up. Oil rigs are also real estate, because they sit on land that is covered by water," he said. Incidentally, the US Internal Revenue Service does include the water space directly above the seabed as land.
Mr Verwer said: "What makes them real is that they are a bundle of rights to a property that can be mobilised to generate income streams. Real estate provides a bunch of income streams. They are in the business of securing occupants to provide those income streams."
And these occupants don't always have to be people. He described how the billboards along the highways of India, which can be as big as buildings, derive their rental income from advertisements. There are also warehouses that store furniture, document storage facilities that store archived documents, data centres that store data.
Teo Wee Hwee, real estate tax leader at PwC Singapore, also considers solar power plants as real estate. He said: "When you look at solar panels, you don't see what goes underground. Apparently it's all connected by grids. So it is real estate, because it's fixed to the ground."
Matthias Meyer, Deutsche Bank head of liquid real assets for Europe & Asia, global client group, however, prefers to draw a more distinct line between real estate and infrastructure.
To him, real estate is easily changeable from a tenant's point of view. Developers can always build more of a type of real estate and steal tenants over with better rates.
Infrastructure, on the other hand, is more monopolistic. A region only needs one airport, for instance. Infrastructure is also much more regulated than real estate, and tenants - say, telcos renting antenna space on a mobile tower - are less likely to move because they need continuity when providing a service to the public.