UK - Property industry representatives have criticised UK chancellor George Osborne's decision not to pursue the introduction of mortgage REITs in his Budget on Wednesday.

The British Property Federation (BPF) said the government had missed an opportunity to create "a new source of loan capital for an industry that is finding itself increasingly starved of debt".

Peter Cosmetatos, finance director at the BPF, said the earliest possible implementation date would be in 2014, even if the Chancellor returned to the consultation in next year's Budget.

"There is every reason to believe that market pressure on banks and regulatory changes could shift appetite in the coming months," he said. "It is unwise for the Treasury to have ruled out one source of property debt for the next three years."

Ernst & Young tax partner Marion Cane said the Treasury had told her it had not seen "sufficiently compelling evidence" to launch a consultation.

"It will take the market time to build up significant portfolios of debt," she added.

"Banks can't sit on debt waiting, and refinancing is coming up in the next couple of years. The Treasury has missed the boat - even though, in the longer term, the market will need mortgage REITs and other solutions."

Meanwhile, there was a muted welcome for the government's announcement that it would consult over the introduction of a social housing REIT regime.

However, some in the industry appeared bemused over the decision to consult over social housing REITs but not residential REITs more broadly.

Cosmetatos told IP Real Estate: "In broad policy terms, it would make more sense to take forward residential opportunities rather than focusing solely on social housing. I just don't understand why they've set the scope so narrowly."

He added: "I have to feel optimistic over the decision to launch a consultation, but we've had a consultation before. The industry told what it wanted from residential REITs and nothing happened."

Cane pointed to hurdles to the introduction of social housing REITs, including the treatment of the ‘churn' within the portfolio that would be required to generate sufficient yield to attract institutional investors but which would currently also attract tax.

She said the consultation would need to address some kind of safe harbour for transactions, and to decide what would happen to subsidies currently sustaining the social housing sector.

In his Budget statement, the chancellor said the government would consult specifically on whether to change the treatment of income received by a REIT when it invests in another REIT - effectively signalling the government's willingness to reconsider REITs' ability to form efficient joint ventures.

The BPF welcomed the move, saying it would help stimulate investment and improve liquidity in the property sector.

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