UK - Changes to the rules governing UK real estate investment trusts (REITs) are unlikely to generate an influx of new vehicles but could help bring institutional investment into the residential sector, analysts have said.
The UK Treasury has issued the results of its informal consultation exercise, including proposals to abolish the conversion charge for companies joining the REIT regime.
Evolution Securities property analyst Mike Bessel said: "Our view is that the changes will make a difference, but don't expect a dozen new REITs in the run-up to Christmas."
He said listed real estate companies that had been considering conversion would likely act in the New Year after waiting in anticipation of the changes due for implementation early in December.
The tweaked rules will do away with the existing 2% conversion fee as a result of what the government described as "generally unanimous agreement" in a consultation exercise, involving fund managers and investors, carried out over the summer.
The rules will also allow the conversion of property companies listed on Alternative Investment Market (AIM). Although listing on the junior bourse is both cheaper and less onerous, the cost of listing remains significant, and the government has faced criticism for failing to allow the setting up of non-listed REITs.
"Private companies have achieved the same thing with overseas listings and through Jersey trusts, in any case," said Bessell.
"The point of REITs is to enable property companies to access equity markets and to give end-investors performance related to the underlying property assets rather than to tax considerations."
Rosalind Rowe, real estate partner at PwC, welcomed the announcement and said the proposals could help attract institutional investment into the UK residential sector.
"The government has listened to [the industry's] views about how changes to the REIT regime could open up the market and give a real boost to the stagnant UK housing market," she said.
"The measures propsoed will make REITs more cost-effective to set up and easier to operate, which will create a more benign framework for residential lettings.
"We are waiting for the detail but the expectation is that these changes will open up the market to a wider group of institutional investors, including pension funds, hedge funds, UK charities and housing associations."
The changes mean companies will be able to convert their status incrementally, initially listing on AIM and then meeting full listing requirements over time.
The introduction of a 'diverse ownership' provision will make it easier for institutional investors to buy REITs, according to the Treasury.
Details of the provision will not be published until December, but Bessell believes the impact will be negligible.
"In the short term, the conversion of existing listed companies into REITs won't make a material difference, unless it's to global funds able to invest in rates across the world seeing more opportunities in the UK," he said.
"Compared with REITs of the size of British Land, the new additions won't be material within the context of the overall market cap of the sector."
