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Gate opens for more REITs as rules are relaxed

Changes to real estate investment trusts under the government’s Finance Bill could open up funding for a range of sectors, from housing to infrastructure, it was claimed this week.

The Treasury published draft legislation last week with a whole raft of amendments to tax laws, including for real estate investment trusts, which were set up in 2007 to encourage investment in the property sector through tax incentives.

More than 20 REITs have been created, with the market worth an estimated £24 billion.

The changes, planned for next summer, will abolish the 2 per cent conversion charge for companies joining the regime, relax the requirement to be listed on a recognised stock exchange and loosen the laws saying REITs must be managed by more than five investors.

The changes could open up the market to a new group of investors, potentially including pension schemes and insurance firms, as well as overseas investors.

PwC real estate partner Ros Rowe told Construction News that REITs could “lend themselves nicely” to infrastructure, such as toll roads or any other asset which provides an “easy return”, such as rented accommodation.

Ms Rowe expects to see at least another 10 REITs join the market in the next 12 months.

Deloitte real estate tax partner Phil Nicklin said he knows of 30 to 40 potential REITs that are in the pipeline for conversion, adding there are likely to be more to come.

Earlier this week, Brendan McDonagh, chief executive of Ireland’s National Asset Management Agency, said he would welcome changes in UK legislation that would allow the bank to place its €31bn loan book in a REIT.

Deputy Prime Minister Nick Clegg also announced plans last week to give the biggest eight cities more powers to invest in their own infrastructure.

The government is also set to publish findings from the Local Government Resource Review this month, which should boost the use of the tax increment financing.


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