BPF: Do Not Rely on REITs to Support Social Housing

The British Property Federation (BPF) has cautioned the government that real estate investment trusts (REITs) should not be viewed as the solution to the funding problems with social housing developments...

The British Property Federation (BPF) has cautioned the government that real estate investment trusts (REITs) should not be viewed as the solution to the funding problems with social housing developments in the UK. In April, the treasury launched a consultation into how the REIT regime could support the social housing sector and whether there should be changes to the taxation of REITs under certain circumstances. This process came to a close on June 27th, with the BPF stating that, while it is broadly supportive of the proposals to use REITs to help fund social housing projects, there are concerns that still need to be addressed.

Senior policy officer at the organisation Ion Fletcher stated REITs may become part of a diverse range of sources for social housing funding, but stressed they should not be viewed as the only option. "The government should not assume that the additional capital which REITs may attract into social housing will replace or make up for the expected reduction in availability of government grant funding," he asserted. Mr Fletcher explained investors in REITs will want to be assured of some kind of commercial return on their initial outlay, adding that "private sector investment in social housing should be seen in the context of the wider private rented sector, because investors will often prefer exposure to a diversified portfolio".

There has been a favourable response to proposals to alter the taxation of REITs, particularly when the fund invests in another REIT. In its submission to the consultation last month, PwC welcomed the changes that have been put forward, commenting it is "encouraging that the government is looking at further changes to the REIT regime to remove inefficiencies and grow the sector". PwC claimed the suggested alterations to the taxation of REITs investing in other REITs will enable investors to diversify into various sectors and enjoy greater flexibility with their property investment. The firm concluded these measures are all part of the necessary process to ensure the regime remains "fresh" and "responsive to a changing market".

- Tuesday 03 July 2012

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