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Green light for real estate investment trusts

Tuesday, 6 December 2005 12:00 AM

The government yesterday announced the go-ahead for a new property investment vehicle in the shape of real estate investment trusts.

Real estate investment trusts (UK-Reits) are designed to make it easier for institutional and private investors to invest in property.

UK-Reits will also provide housebuilders with access to lower risk borrowing, thus making it easier for them to build more houses and bridge the gap between housing supply and housing demand.

The chancellor Gordon Brown told the House of Commons: "To widen the number of investors in the residential and commercial property markets, we will this month publish legislation to set up in Britain real estate investment trusts that will increase the funding of new property developments."

The government plans to bring forward firm details of the tax proposals for UK-Reits before the end of the year, and will legislate for them following the 2006 Budget.

The announcement on real estate investment trusts takes on a greater significance as a result of the government's U-turn on the tax treatment of residential property in self-invested pension plans, which means investors will not now be able to invest directly residential property and get tax relief as part of their pension.

They will, however, still be allowed to invest indirectly in property as part of their pension and benefit from tax relief through investment vehicles such as UK-Reits.

The announcement on UK-Reits was widely welcomed by financial firms.

Stuart Law, managing director of property investment firm Assetz said: "This has the potential to deliver much needed funding to housebuilders as well as providing a wide range of property-based investment funds to investors."

Tony Vine-Lott, director general of the PEP and ISA Managers' Association also welcomed the announcement, but said it was essential for them to be included as qualifying investments for ISAs and child trust funds.

Real estate investment trusts are already common investment vehicles in other countries - most notably the United States.

Fidelity International predicts that the global market for Reits could reach $1 trillion within the next five years.

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