GLOBAL - Real Estate Investment Trusts (REITs) will continue to be attractive investment vehicles for institutional investors and grow internationally despite the sharp economic downturn, according to the European Public Real Estate Association's (EPRA's) latest survey.
EPRA's 2008 Global REIT Survey, which covers 34 countries including new entries for Luxembourg, India and the Philippines, suggests the most flexible and tax-efficient REITs are likely to attract capital flows once property holdings begin to recover.
The survey outlined the global trends emerging from legislative developments in REIT and REIT-like regimes across Europe, Asia, Africa and the Americas.
Moreover, Gareth Lewis, director of finance at EPRA, told IPE Real Estate: "The fact that governments are continuing to introduce new REIT regimes and see the merits and the benefits that REIT regimes can bring bodes well for their continued growth. I also think that in the current environment the fact that REITs tend to be corporate, publicly-listed vehicles, which therefore, in general, offer both transparency and liquidity, is going to be very important for attracting investment going forward."
The Spanish government's approval of legislation for a REIT-like vehicle confirms REITs' popularity as a way of attracting capital back into the real estate sector, suggested Lewis.
And REITs are expected to be increasingly attractive to institutional investors, especially for residential property.
"I think institutional investors will probably lead the way in terms of investing in REITS when they decide that the time is right," said Lewis.
"In the past the figures haven't really added up for institutional investors investing in residential property via a publicly-listed vehicle. We are maybe seeing the markets reaching the bottom of the cycle now, and we might therefore start to see institutional investors, in particular, starting to be attracted to investments via transparent listed vehicles such as REITs," he added.
There is concern, however, that there will be a lack of financing for REITs in the near-term future.
"There is a general concern that there is a lack of financial liquidity in the markets at the minute and the real estate and REIT are not immune from that," said Lewis.
The British Property Federation welcomed EPRA's findings and praised the UK government's earlier decision to introduce REITs.
Liz Peace, chief executive of the British Property Federation, said REITs remain "one of the most efficient investment vehicles for property."
"The government was wise to introduce UK-REITs in 2007 and we hope that officials can continue to hold positive dialogue with the industry to ensure the future growth of the regime," she added.
According to Lewis, countries with REIT regimes which have "incentives and lower barriers to attracting capital" will attract the most cash, whether in the form of inward investments from overseas investors or opportunities for transferring property from other forms of ownership into REIT ownership.
"France, as an example, have fairly generous and flexible rules for encouraging that process", said Lewis.
The Global REIT Survey is an annual collection of REIT legislation by country and is intended to be a key point-of-reference for investors, regulators, analysts and advisers. The latest survey included additional market observations, individual sector summaries and the latest political developments.