The major issues facing the successful introduction of the UK REIT

Abstract

AbstractExciting times are afoot in real estate finance and investment within the UK. This year has already seen the Barker review of housing policy, the Draft Planning Policy Statement 6 reforms to the existing Planning Policy and Guidance Note 6 (PPG 6), new rules on the tax treatment of property derivatives and the continuing review by the Financial Services Authority, through Consultation Paper 185, of Collective Investment Schemes. Moreover, March 2004 saw HM Treasury (‘HMT’) announce a consultation exercise on how property investment funds (‘PIFs’, although in this paper they will be referred to as ‘UK REITs’)[The name may change to reflect the financial structure, and the UK Government (in an indication that it may not be happy with ‘PIFs’ as a name) has welcomed alternative suggestions. After all, it could not have been called a Property Investment Trust (after the Housing Investment Trusts of the 1990s), since one would imagine the take‐up of a product called a PIT to be relatively low.] in the UK should be structured to encourage more efficient investment in commercial and residential real estate.[Seehttp://www.hm‐treasury.gov.uk/budget/budget_04/associated_documents/bud_bud04_adproperty.cfm.] The consultation paper reveals that HMT is contemplating a tax‐neutral vehicle that will be well regulated (ie low risk), boost liquidity and thus appeal to the small retail investor in providing indirect access to both the residential and commercial property investment markets. The initiative for such a vehicle is driven by a desire, through a government‐led review of the taxation of real estate, to stem the flow of investment offshore. Through the introduction of UK REITs, HMT hopes to redirect the £25bn or so of UK real estate investment into a properly regulated onshore investment vehicle, thereby protecting UK tax revenues. This paper will, through examining the successes of the REIT market in the USA, consider the major issues raised and faced by HMT in introducing a vehicle which will succeed and ultimately benefit the UK economy. Copyright © 2004 Henry Stewart Publications