UK - UK residential Real Estate Investment Trusts (REITs) will be attractive propositions for institutional investors and could help bring liquidity into the market, according to experts attending an IPD pre-conference meeting in Brighton yesterday.
Strong rental demand, a lack of supply, greater affordability of housing and availability of large lot sizes could make residential REITs "tremendous" investment choices for institutional investors, and help investors achieve premium rent from properties, according to Robin Priest, of consultancy firm Deloitte.
"The positive news is that this is an excellent time for institutions to start thinking about the residential market; not necessarily thinking about plunging in tomorrow, because there is a little way to go, but getting ready to take the plunge relatively soon because gross yields have significantly increased."
Residential property prices have been rising on average by 54% every 5 years since 1950, according to Priest, and in the five years to 2007 prices rose by 82%, largely because of the availability of credit.
"Since the second world war there has been in this country no better investment," suggested Priest.
The UK currently has the sixth-highest home ownership percentage worldwide, at 70.6%, after Spain, Greece, Italy, Belgium and Luxembourg, but Priest predicts the rental market will grow.
"Rents are in many parts of the country prone to rising. There is more demand than there is supply so people are not buying, they are going to be renting. And it is now happening," he claimed.
A recent proliferation and increased efficiency of professional managers is also expected to encourage investors into the residential market, argued Dominic Smith, research manager at Land Securities.
"I think it is pretty inconceivable to believe at some point in time a residential REIT will not be launched, whether that's a student housing [REIT] a social housing [REIT] or a more conventional residential [REIT]."
There are, however, issues that residential REITs must deal with.
"From a formation standpoint, it is very expensive to put a residential block into a REIT because you pay 4% in stamp duty," said Priest.
According to Priest, stamp duty tax, unfair entry charges for new REITs and listing are among some of the issues facing residential REITs today, however, the Treasury is said to be currently considering revising these restrictions.
The 90% distribution rule is also a problem for residential REITs and should be reduced, according to Priest.
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