New REIT rules open the door for insurers' property assets

South Africa's expanded REIT framework allows qualifying insurer-owned property companies to access new tax benefits, but complex fund structures demand careful financial planning.

• New REIT rules allow qualifying unlisted property companies wholly owned by insurers to access the tax framework previously reserved for listed entities.
• Strict qualification requirements include R300 million in assets, 80% property exposure, 75% rental income and a 60% debt ceiling.
• Tax complexities remain, with insurer fund structures, assessed losses and IFRS 17 adjustments potentially influencing the benefits of conversion.

A significant shift in South Africa's property investment landscape

South Africa's real estate investment trust (REIT) framework has entered a new phase, opening the door for qualifying insurance companies to restructure their property investments through unlisted REITs.

Since 19 August 2026, unlisted companies wholly owned by long-term or short-term insurers have been eligible to qualify for REIT status, subject to stringent financial and operational requirements.

Previously, the REIT tax framework was restricted to qualifying listed property companies.

The regulatory change represents the first stage of a broader expansion designed to accommodate qualifying unlisted property companies owned by specified institutional investors.

For South Africa's insurance industry, which holds substantial property investments through subsidiaries, the development introduces new opportunities for tax efficiency, capital allocation and portfolio restructuring.

However, tax specialists Louis van Manen and Geraldene Goldner caution that the benefits are far from automatic. Their analysis highlights a critical distinction: what appears attractive at the property-company level may produce a very different tax outcome once the income flows into an insurer's underlying funds.

1. What has changed for institutional property investors?

The expansion allows qualifying insurer-owned property subsidiaries to access a tax framework traditionally associated with JSE-listed REITs. This creates a new structuring option for insurers seeking to manage property assets and investment returns more efficiently.

Key developments include:

• Unlisted REIT eligibility: Qualifying insurer-owned property companies can now access REIT status.
• Institutional investment: The change extends the framework beyond listed property groups.
• Property restructuring: Insurers can assess whether existing subsidiaries would benefit from conversion.
• Potential tax efficiency: Qualifying distributions and property disposals may receive favourable treatment.

The development could encourage institutional investors to reassess how property assets are held, financed and managed. However, eligibility is only the starting point.

2. Strict financial requirements must be maintained

Qualifying for REIT status requires more than simply owning a substantial property portfolio. Insurer-owned companies must satisfy several ongoing requirements relating to asset composition, income, debt and distributions.

The principal qualification thresholds are:

These requirements must be maintained continuously, rather than satisfied only when a company initially qualifies. For insurers, this means testing whether their property subsidiaries can remain compliant through changing market conditions, refinancing cycles and portfolio transactions.

3. The potential tax benefits of REIT conversion

One of the principal attractions of REIT status is the tax treatment available under Section 25BB of South Africa's Income Tax Act. The framework allows qualifying REITs to deduct certain distributions made to investors and provides capital gains tax relief on qualifying property disposals. This can improve tax efficiency within a property-holding structure.

Potential advantages include:

• Deductible distributions: Qualifying distributions can reduce taxable income at REIT level.
• Capital gains tax relief: Certain qualifying property disposals receive favourable treatment.
• Income distribution: The framework supports regular distributions of property income.
• Portfolio restructuring: Insurers gain an additional option for holding substantial property investments.

However, these benefits must be weighed against the loss of certain building-related tax allowances and the tax consequences for the receiving insurer.

As Van Manen and Goldner explain in their analysis, the critical issue is not simply whether REIT status reduces tax within the property subsidiary. The real test is whether the structure delivers a favourable outcome across the insurance group.

4. Why insurers face a more complicated tax calculation

Unlike conventional corporate investors, long-term insurance companies operate under a specialised tax framework. Section 29A of the Income Tax Act divides a long-term insurer into separate funds, each with its own tax treatment.

A single insurance company can therefore effectively operate across several distinct tax positions. The principal complications include:

• Multiple tax funds: Long-term insurers may operate through as many as five separate funds.
• Different tax outcomes: Income and capital gains may be treated differently depending on the receiving fund.
• Ring-fenced losses: Assessed losses may only be available within the fund where they arose.
• Distribution allocation: The destination of REIT distributions can materially influence the overall tax result.

For example, a property subsidiary may benefit from deductible REIT distributions, but those distributions could create additional taxable income when received by an insurance fund. The outcome depends on the insurer's specific structure and tax circumstances.

This makes fund-level modelling essential before any conversion decision.

5. Historic allowances and deferred tax add further complexity

Existing property portfolios may carry substantial deferred tax balances, historic building allowances and other tax attributes. Converting a property subsidiary into a REIT could require these positions to be reassessed.

Van Manen and Goldner highlight several issues requiring detailed examination. Important considerations include:

• The treatment of existing building allowances.
• The effect on deferred tax assets and liabilities.
• The potential use or limitation of assessed losses.
• The timing and classification of distributions.
• The consequences of alternative ownership structures.

SARS Interpretation Note 97 provides extensive guidance on Section 25BB, illustrating the technical complexity of the regime. Even relatively small differences in transaction structures or distribution timing can materially affect the tax outcome.

For insurers, detailed scenario analysis should therefore form part of the initial feasibility assessment.

6. IFRS 17 creates an additional challenge

The timing of the REIT expansion is particularly significant for insurance companies still managing the tax consequences of IFRS 17. The accounting standard, effective from 1 January 2023, substantially changed how insurers recognise and report insurance contracts.

Its tax implications are being phased in over different periods for long-term and short-term insurers. Key considerations include:

• Long-term insurers: A six-year tax transition period.
• Short-term insurers: A three-year transition period under the applicable framework.
• Tax calculations: Changes to accounting figures can influence taxable income.
• REIT conversion: Any restructuring must be assessed alongside existing IFRS 17 adjustments.

This means insurance tax teams must evaluate potential REIT benefits within an accounting and tax framework that is itself undergoing transition.

7. What should insurers consider before converting?

The expanded REIT framework creates a potentially valuable opportunity, but successful implementation will require careful planning. Van Manen and Goldner's analysis points to several practical priorities.

A recommended assessment should include:

• Confirming that the property subsidiary satisfies all qualification thresholds.
• Testing its ability to maintain compliance over multiple financial years.
• Modelling how REIT distributions will be taxed within each insurance fund.
• Assessing historic tax allowances, deferred tax and assessed losses.
• Comparing the outcomes of alternative investment structures.
• Evaluating the interaction with IFRS 17 tax adjustments.

Importantly, the decision should be based on the financial consequences for the entire insurance group rather than the property subsidiary in isolation.

The bottom line: Opportunity demands careful tax planning

South Africa's decision to expand REIT eligibility to qualifying insurer-owned property companies represents an important development for institutional property investment.

It creates new opportunities to restructure substantial property portfolios, improve tax efficiency and potentially optimise investment returns. However, the benefits must be measured against the complexities of insurance taxation, fund-level income allocation, historic tax positions and ongoing regulatory requirements.

For insurers holding significant property assets, the opportunity is worth investigating, but it is not a straightforward conversion exercise.

The central question is no longer simply whether an insurer's property subsidiary can become a REIT, but whether doing so creates sustainable value for the insurance group as a whole.

As Van Manen and Goldner's analysis makes clear, the answer will depend on detailed modelling, careful structuring and a comprehensive understanding of the interaction between property and insurance tax legislation.

Based on technical analysis by Louis van Manen and Geraldene Goldner. Tax positions should be confirmed against applicable legislation and professional advice before implementation.