Archive for February, 2008

Are Real Estate Investment Trusts hitting the spot?

REITs (real estate investment trusts) have been with us now for more than one year. Their aim was to offer investors income and capital appreciation from rented property in a tax efficient way. They enable distribution of taxable income through dividend payments, thus avoiding double taxation (corporation tax plus tax on the dividends).

REITs are aimed at both the commercial and residential markets. However, due to the higher returns, and hence higher levels of investment, offered by the former, the residential market has not, it would seem, taken REITs to its heart. The British Property Federation (“BPF”) hopes that the recently announced Government review of rented housing, announced by the then housing minister, Yvette Cooper, on 23 January 2008, will “pave the way for greater investment from institutions, which could fund large scale, professional ‘build-to-let’ developments and put an end to the housing crisis”.

Before that can happen, the regulations surroundng REITs need amendment says the Property Industry Alliance (“PIA” – an alliance of four trade bodies i.e. the BPF, the British Council of Offices, the Investment Property Forum and the RICS). The PIA’s recently issued report calls on the Government to amend the REIT regulations to encourage the formation of residential REITs. The PIA says that it is “widely accepted that corporate residential investment and ownership could improve efficiency in housing by adopting the business models used for running offices and shopping centres”. The PIA states the Government needs to amend rules on stamp duty, VAT and restrictions on borrowing in order to encourage the formation of REITs specialising in residential property investment.

The PIA goes further. In his letter to HM Treasury dated 10 December 2007, Ian Coull, the chairman of the PIA REIT Committee, expresses some “significant concerns” that without Governmental proactive development, the REIT regime as a whole could stagnate at its current level.

Is this all news to you? If so, why not consider asking Hatherleigh Training to tell you more about this and other aspects of the property market?