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REITs to create a thriving property market in Britain

8th December 2005 | back to article listings BACK    print this article PRINT

Early signs suggest that the decision to introduce Real Estate Investment Trusts (REITs) has the potential to transform the UK property market.

The policy was proposed in the pre-Budget speech last week to attract more investment into property companies and to boost the home building industry and draft laws will be published before the end of the year detailing the particulars of the legislation.

REITs charge much lower levels of tax and require companies to distribute at least 95 per cent of their profit in dividends to investors. They are already popular in Australia, France and the US and the success of the trusts in these countries has led many to speculate that Britain may now see a rise in new property investment.

According to the Australian Financial Review, London Stock Exchange spokeswoman Catherine Mattison believes that the introduction of REITs will have a monumental effect in the UK and throughout Europe and has speculated that London will soon become predominant in the European REITs industry.

"The government's announcement on REITs is an important milestone for both the property industry and for investors," said Ms Mattison.

"We will be working closely with the market in the coming months with the aim of making London the centre for the listing and trading of REITs throughout the EU," she added.

There are some reservations, however, and property investors are now awaiting details of the amount of money that it will cost a company if it wishes to convert to a REIT.

According to Reuters, Gareth Lewis, director of finance and investment at the British Property Federation (BPF), is concerned that the government's attempt to compensate for revenue lost through the avoidance of the corporation tax will push up the conversion costs which may discourage some companies from taking advantage of the opportunity.

"It (the charge) will be very important to whether the industry takes REITs up or not. If it is too high then some companies won't convert," he warned.

Meanwhile, Legal Week has suggested that real estate lawyers are preparing for a sudden increase in business related to the various facets of establishing REITs.

"REITs could have a huge impact on the property sector. For law firms it will be work listing companies preparing to convert, converting listed companies into REITs and setting up new REITs," said David Lane, a real estate partner at Lovells.

Legal Week also reported that some analysts have predicted the REITs policy will double the value of the UK's quoted property sector because of the sudden influx of real estate investment.

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