REAL ESTATE - The UK government has formally laid out the REITS legislation that will come into force at the beginning of 2007.

The regulations, as presented last week to the UK parliament, laid out the conditions for "10% condition", the requirement for 90% distribution and the gearing limit. They also cover financial reporting, tax assessment and joint ventures.

Under the 10% condition, companies – but not individuals – that own more than 10% of shares in a REIT will face a tax penalty if they receive dividends from it.

The British Property Federation (BPF), which led an industry campaign for clarity on key provisions of the legislation, said it contained "few surprises".

Dave Butler, project manager for the BPF’s REITA campaign, said: "There’s been a lot of campaigning to get [the 10% rule] relaxed. It isn’t a major change – more a clarification. The government has proved very flexible and responsive to the industry’s concerns and this is another example of that."

The government is expected to publish full guidance on the legislation before the end of the year. The BPF, which led an industry campaign for clarity on key provisions of the legislation, said it would work with the government to improve the guidance.

Mike Prew, a property analyst at Lehman Brothers, said last week that companies that can convert to REITs should "almost immediately".

"I think every company that actually meets the operation requirements will become a REIT sooner rather than later," he said.

The BPF forecasts that 15 British property companies will convert to REITs within six months of REITs legislation coming into force. Last week’s clarification would not increase that number, Butler said, although "it might make some other investors with significant private holdings give more thought to REITs".

Fidelity International claims the global market for REITs will reach $1tn by 2011.