UK removes barriers to housing, REITs for institutions
UK - The UK government has set in motion changes that could prompt institutional capital to start flowing into the residential property sector and UK real estate investment trusts (REITs).
Chancellor George Osborne announced in his Budget that stamp duty charged on portfolios of residential properties would be charged on the average price of homes, not the aggregate price, removing one of the biggest barriers to institutional investment in the sector.
Existing stamp duty rules have made buying large portfolios prohibitively expensive for institutional investors that invariably require large-scale investments.
Osborne also paved the way for removing of the so-called 'non-close company rule' that applies to UK REITs and prevents the top five shareholders from owning more than 85% of the vehicle.
Such a move would make it easier for pension funds and insurance companies to set up REITs to hold direct property assets.
The government will establish a formal consultation to discuss the proposed move - along with other proposals that would reduce barriers to entry for UK REITs - with the real estate industry.
The British Property Federation (BPF) has been lobbying the UK government on both matters, but admitted it was surprised by the announcements.
Liz Peace, chief executive at the BPF, said: "This is a budget the property industry will want to get behind. It has a general thread that is supportive of enterprise and a number of issues on which our industry can genuinely feel it is being supported.
"We are particularly pleased the government has been willing to engage on issues such as planning reform, REITS and the stamp duty bulk purchase rules. The government has listened to ours and others' representations, and you cannot ask for much more than that."
Ian Fletcher, director of policy at the BPF, was particularly pleased with the government's stance on stamp duty, vindicating one of the BPF's long running campaigns.
"It will provide an important boost for the private rented sector and, we hope, will tip the balance in encouraging institutional funds into building homes," he said.
"Using the average price is fairer and a welcome measure of support for those in need of rented housing."
Peter Cosmetatos, director of finance at the BPF, said the forthcoming REIT consultation covered many of the issues the organisation has lobbied the government on in recent years, and in some cases goes even further.
"We are optimistic that, taken together, these proposals could have a real impact on boosting investment in UK property and in the scale and health of the UK's REIT sector, and look forward to participating in the consultation."
Standard Life Investments (SLI) said it was supportive of the proposed changes to the UK REIT regime.
Andrew Jackson, fund manager for SLI's Select Property Fund, said: "Standard Life Investments welcomes any efforts to simplify REIT legislation and make REITs more accessible to investors.
"Any proposed changes that bring in a wider audience of investors can only be good for the UK property market and investment in the UK economy as a whole."