What are REITS?
REIT stands for Real Estate Investment Trust and was officially launched on
the 1st January 2007. Like any other investment trust they offer benefits
to both the company and the investors.
Benefits to company
- tax efficient structure
- access to new investors/capital
- stronger performance to Net Asset Value (NAV)
- acquisition currency
Companies who have converted to becoming an REIT will benefit in that they
will not have to pay capital gains tax and corporation tax (double taxation). 90%
of the untaxed income will have to be distributed to investors and a one off
charge, around 2% of total portfolio is payable to the treasury.
Benefits to investors
- tax transparent
- regular high-yield returns
- access to property for minimal outlay
- low/controlled gearing
- portfolio diversification (low correlation to equities and bonds)
- liquidity - easy to buy/sell
- strong corporate governance
The most obvious benefit is it allows smaller investors to become property
investors without buying a brick. It is also a lot more liquid, meaning
that you can buy and sell your shares of the REIT very easily. Your dividends
will be taxed however if you put your shares into an ISA this will not be the
case.
Downside?
Many market analysts are predicating the end of the property boom of the
last 15 years and believe it has topped. If you believe this then the new
REITs are not for you. However giving the liquidity of the REITs I would
say it is a good way to step into the property market if you have a small budget.
UK companies who have converted to REIT status as
of 1st January 2007
The following is a list of companies which have already converted to REIT status.
British Land
Brixton
Great Portland Estates
Hammerson
Land Securities
Liberty International
Primary Health Properties
Slough Estates
Workspace Group
No doubt there will be other companies rushing to convert in the next few
months once they have looked at the performance of the other REITs. It
doesn’t beat the buzz of investing directly and you won’t learn
about property investing this way, but if you want a low cost low risk property
investment opportunity this may well suit you.
This is also a good way to to diversify your portfolio investments if you have already invested in property. It’s good to have a mixture of property investment vehicles, such as investing in residential, commercial, and now REITs.
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