Reits - property investment trusts arrive
Tuesday, 06 December 2005 12:00
Chancellor Gordon Brown has announced the imminent arrival of the real estate investment trust (Reit) to the UK market.
In his pre-Budget report yesterday, Mr Brown said that legislation would be published this month allowing real estate investment trusts (Reits) to be set up in the UK.
Reits will allow investors to buy and sell shares in property trusts, holding either commercial or residential property. Investors can buy into the fund, thereby gaining exposure to the property market without needing the capital to buy a property outright.
The introduction of Reits will "widen the number of investors in the residential and commercial property markets" and "increase the funding of new property developments", Mr Brown said in his speech to parliament.
"After much delay, it is encouraging to hear that real estate investment trusts are now proposed for introduction next year," said Stuart Law, managing director of property investment firm Assetz.
"This has the potential to deliver much needed funding to housebuilders as well as providing a wide range of property-based investment funds to investors."
And there is considerable interest from investors.
The Association of Investment Trust Companies points out that, in 2005, 60 per cent of new investment trust launches have been in the property sector.
Fidelity International adds that the global market for such trusts could reach $1 trillion inside the next five years.
The investment firm points out that Reits already offer gross yield higher than the yield on UK equities, and total annual returns from the composite global property index (FTSE EPRA/ NAREIT) have averaged 11.7 per cent over the ten years to end June 2005.
In the UK the position is even better, with the government saying Reits must distribute at least 95 per cent of income as dividends in the UK, ten per cent higher than the global level.
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