Assetz® News - Industry welcomes REIT decision

Industry welcomes REIT decision

23rd March 2006 |

Experts have today been reflecting on the potential impact of Gordon Brown's Budget on the property investment industry, with the vast majority welcoming most of the decisions that have been made.

The announcement that real estate investment trusts (REITs) will be introduced to the UK in January 2007 is perhaps of most immediate significance to investors and the Royal Institution of Chartered Surveyors (Rics) was one of the first to respond to the news.

Rics has said that the trusts should assist the government in its attempt to improve the efficiency of both the commercial and residential property investment markets. In addition to this, it is hoped that they will provide greater scope to a huge number of individual investors.

"The government has listened to industry concerns regarding restrictions on gearing, effectively doubling the borrowing thresholds. Also, basing the conversion charge at two per cent of total gross asset values will mean a lower tax charge than a model based upon capital gains," said Rics in a statement.

"These welcome amendments should facilitate an easier transition to REIT status for many listed property companies."

The PEP and ISA Managers' Association (PIMA) has also welcomed the decision on REITs, with director general Tony Vine-Lott particularly pleased that they can be included in ISAs.

"Allowing property as a qualifying investment will give investors a greater range of choice for their tax-incentivised savings. This can only further enhance the attractiveness of ISAs - the foremost vehicle for savings in the UK," he said.

Interestingly, one of the dominant themes discernible in almost all of today's Budget fallout is a sense of satisfaction that the government has listened to property experts.

It is something that was immediately observed by Rics, but Fidelity International has also been pleasantly surprised that its recommendations have been taken into account.

"We welcome this move and are encouraged that the government has listened to the industry and is fully behind establishing a world-wide recognised REIT structure within the UK," said Steve Buller, manager of Fidelity Global Property Fund.

"The way in which property stocks are reacting indicates that the market is also greeting the news positively.

"We expect many of the current quoted UK property companies to convert to the new REIT structure," he added.

In his pre-Budget speech, Mr Brown disappointed many property investors with a U-turn on Sipps and a slightly underwhelming set of proposals on REITs. In the Budget itself, however, it seems the chancellor went some way towards patching up his relationship with the property industry, not least because of the decision to double the level of borrowing permitted in a REIT.

In addition to this, the Treasury announced the required distribution rate would be reduced from 95 per cent to 90 per cent of net profits, allowing more flexibility for participating companies.

The early indications suggest that interest in REITs will be extraordinarily high, but analysts will be keeping a close eye on the market in the coming months to gain a greater idea of how the trusts will operate.