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UK pushes ahead with redefinition of REITs as institutional investors

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The UK government is to allow REITs to attract investment from rival listed property funds in an effort to increase liquidity in the market.

The measure was confirmed as part of the coalition government’s autumn statement, which also saw plans announced to introduce a capital gains tax on property investments by overseas investors, after the coalition government initially announced its intention to change the definition of institutional investor during the 2013 Budget earlier this year.

Liz Peace, chief executive of the British Property Federation (BPF), said of the changes: “This will increase the attractiveness of UK investment property by making it easier for REITs to raise funds through joint ventures and co-investment arrangements.”

Ion Fletcher, director of finance at the organisation, added that it was very pleased the government had listened to its requests to alter the definition of institutional investor.

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“By allowing overseas REITs to take significant interests in UK REITs,” Fletcher said, “the decision will ultimately increase the availability of capital to the UK market and at the same time promote the transfer of expertise, with widespread benefits for the whole industry.”

Rosalind Rowe, real estate partner at PwC, noted that the government was reacting to a decline in debt since the “heady days of 2007”, when REITs were first launched in the UK.

“But the market has changed,” Rowe added. “REITs have responded to the lack of bank debt by accessing new sources of capital, including increasing the number of joint ventures in which they participate.”

She also said the move would allow the funds to be “more agile and diversify their holdings”.

“Treating a REIT as an institutional investor does not place any barriers on the percentage of shares one REIT group can hold in another,” she said. ”This will enable the REIT and its co-investor to choose independently when to exit.”

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