On March 17th the Chancellor Gordon Brown is likely to issue a consultation paper that many believe will transform the UK property market including residential property and affordable housing.
REITs (Real Estate Investment Trusts) are tax efficient property schemes that have already transformed the property sectors in countries like Belgium, Australia, France and Japan.
They apply to quoted property companies which can transform into a REIT for a one off payment of half of a groups capital gains tax. This will allow them to be exempt from paying corporation tax and any future capital gains tax. A REIT must then transfer a minimum of 75% of its income to investors. This will make them attractive to pension fund investors but it will also allow private investors to effectively take a stake in the property sector without actually buying property themselves e.g. in a buy-to-let project.
The real advantage for the sector however is the influx of funds that will allow them to expand and build more. In the last fifteen years for instance the value of the North American property market has increased from $10bn to $200bn. Australia has seen the sector increase from $5bn to $50bn and Japan has gone from zero to $10bn in the last ten years.
Some analysts predict that REITs will facilitate the regeneration of the affordable housing-to-rent sector and, given the shortage of housing in the U.K., the government may well start with a REIT that is focussed entirely on that sector which will disappoint many commercial operators.
Far from listing on the stock market, over the last few decades in the U.K. many property companies have gone private and as a result billions of pounds of assets are locked in offshore accounts. The removal of tax disincentives could reverse this trend and see the money move back into the U.K.
The Brighton & Hove Economic Partnership has commissioned research by professor Christine Whitehead of the LSE into the affordable housing problem in the city and the results will be presented at a high level Think Tank at the Hotel Seattle on 1st March. Professor Whitehead’s paper will be published on this site.
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Brighton & Hove Economic Partnership