It has always been the vision of the Malta Stock Exchange (MSE) board to innovate and modernise the exchange and, along with it, the local capital markets. The board has always been committed to enabling Maltese companies to raise capital cheaply and efficiently and it recently rolled out changes to the exchange’s by-laws to accommodate the listing of real estate investment trusts, better known as REITs. The board believes this initiative is one of the more exciting projects it has rolled out since it introduced the national capital market strategic plan in 2016.

Today, apart from derivative trading, the MSE is as accommodative to its capital market as any major stock exchange in the world. There are fewer than three dozen countries that offer a REIT framework, and Malta is now one of them. The exchange recently hosted a webinar introducing its new REIT framework and, considering over 160 people signed up, this proves that the REIT concept resonates.

A REIT is a corporate entity that owns and manages properties and generates rental income. The properties could be an apartment complex, office space, warehouses, commercial space and shopping malls. This makes it possible for investors to earn dividends from real estate investments – without having to buy, manage or finance the acquisition of properties themselves. REITs are not designed to act as a vehicle to raise capital to finance the development of new real estate projects. They should ideally be used for existing and operational property.

In the past, large landlords could sell properties in two ways: either by breaking up their pro­perty portfolio and selling individual properties piecemeal, or by selling their portfolio to large, deep-pocketed companies or high net worth individuals. The problem with this is there are only so many investors who can afford purchasing multimillion euro real estate projects.

With the introduction of REITs, property owners can  package income paying properties into a security and sell shares of these properties to small investors. REITs trade on an exchange, offering investors an efficient and cost-effective manner to invest in real estate. Small investors can invest as little as just a few hundred euros, buying a few shares of a REIT.

Also, investors from anywhere in the world can invest in local real estate rental property easily, simply by buying a REIT traded on the Malta Stock Exchange.

But don’t we already have real estate development companies listed on the MSE? What’s the difference between these companies and REITs? The difference is significant. There are a number of companies listed on the MSE that are in the business of buying property, developing, then selling units, hoping to generate a capital gain. It is up to the company’s board to decide whether a dividend should be paid and how much that dividend should be.

On the other hand, a REIT is a company that buys, owns and operates income-producing pro­perties and manages properties for the long haul. To qualify as a REIT, the company must adhere to the MSE’s by-laws, which includes owning three separate properties and paying at least 85 per cent of its distributable income to shareholders via a dividend. This should offer REIT investors some comfort in knowing that, if the properties generate rental income, it will be shared through a dividend.

Most importantly, REIT rental incomes will not be subject to tax; instead, REIT dividends will be charged a flat 15 per cent tax, comparable to the taxes paid on rental income.