UK to lift barriers on REIT regime

Proposals announced by Chancellor George Osborne to simplify the UK's Real Estate Investment Trust (REIT) regime go beyond 'the most optimistic' prospects that the industry could have predicted, according to the British Property Federation (BPF).

BPF said the removal of some of the barriers to entry to the REIT regime should 'provide a timely boost to investment in UK property and the REIT sector'.

Chancellor Osborne announced in the Budget 2011 that changes to the REIT system will be evaluated including the mooted abolition of the 2% conversion charge, and the introduction of a diverse ownership rule for institutional investors which will enable them to meet the non-close company rule. Other notable successes included the disaggregation of stamp duty on bulk house purchasing, a simplification of the planning system and allowing businesses to lead neighbourhood planning in predominantly business neighbourhoods.

Stamp duty has long been cited as an obstacle standing between large institutional investors, such as pension funds, and investment in residential property, BPF said. If institutions could be attracted in greater number into the residential sector, a significant increase in new homes would result. For example, a fund of £1 bn could see as many as 5,000 new homes built, based on average house prices.

'This is a budget that the property industry will want to get behind. It has a general thread that is supportive of enterprise and a number of issues on which our industry can genuinely feel it is being supported,' said Liz Peace, chief executive of BPF. The plans are expected to result in a flurry of new REITs in both the residential and commercial property markets.

Informal consultation on the proposals will start immediately with legislation promised in 2012.

Rosalind Rowe, PwC real estate partner, said: 'Not only will there be simplification of the ownership requirements and listing regime, but a whole raft of measures which will make REITs easier to operate and to understand. Those changes, coupled with abolishing the entry charge and allowing cash to be a good asset, are clearly focused on encouraging new entrants into the regime.'

Standard Life Investments also welcomed the effort to simplify REIT legislation and make REITs more accessible to investors. 'Any proposed changes that bring in a wider audience of investors can only be good for the UK property market and investment in the UK economy as a whole,' said Andrew Jackson, fund manager of SLI's Select Property Fund.