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REITs boost property share prices

20th December 2005 | back to article listings BACK    print this article PRINT

Experts are predicting that when the real estate investment trust (REIT) structure is introduced to Britain in 2007 it will finally free-up the share prices of real-estate investment companies.

MarketWatch argues that the failure to introduce the REIT structure at an earlier stage has been capping share prices in the UK meaning that property investment companies have been "trading at a discount to their net asset values."

The chief example cited is that of Land Securities which was recently trading at 1,627 pence in London which compares to a net asset value (NAV) of 1,694 pence. A similar scenario is discernible in the figures from British Land which has been trading at 1,004 pence in relation to a NAV of 1,256 pence.

With the government currently finalising details on the UK REIT legislation, share prices have received a considerable boost as investors have become increasingly confident that the REIT proposals can alleviate the current tax disadvantages. The theory is that this will lead to a general rejuvenation of the property industry which will in turn inspire confidence among retail investors.

Investors are looking to foreign models to gauge the impact REITs will have on the UK property market, and it was reported on Friday that units in the Prosperity REIT belonging to Hong Kong tycoon Li Ka-shing had increased by 27 per cent in anticipation of the US$250 million Hong Kong market debut that day.

Further optimism has been drawn from the fact that units in the real estate investment trust of Guangzhou Investment have traded 20 per cent to 24 per cent above their initial public offering price in the gray market today. Evidence from the rest of the world is strongly indicating that REITs will have a huge influence on the property investment industry in this country.

It is reported by MarketWatch that this wave of optimism has boosted the sector by 2.6 per cent in the past 20 days, with investors excited about the benefits that REITs will offer. This means that the sector is now up 15.2 per cent in 2005 and shares in property are expected to rise solidly as interest grows.

"I imagine that people think there will be greater demand for property shares [and] that they'll be able to compete more easily than they have up to now," said John Weston Smith, chief operating officer of British Land.

"The property business has proved a good place to invest for quite a long time," he added.

With the UK still lagging behind a number of countries in which REITS have been a fixture for some time, it is hoped that the eventual introduction of the legislation will result in property investment companies trading at a premium to NAV.

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