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Reits In The Uk - Large Institutional Landlords

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from wikipedia:

"

United Kingdom

The legislation laying out the rules for REITs in the United Kingdom was enacted in the Finance Act 2006 and came into effect in January 2007 when nine UK property companies converted to REIT status, including the five that were FTSE 100 members at that time: British Land, Hammerson, Land Securities, Liberty International and Slough Estates (now known as "SEGRO"). The other four were: Brixton, Great Portland Estates, Primary Health Properties and Workspace Group.[citation needed]

British REITs have to distribute 90% of their income. They must be a close-ended investment trust and be UK resident and publicly listed on a stock exchange recognised by the Financial Services Authority.[citation needed]

To support the introduction of REITs in the UK, the REITs and Quoted Property Group was created by several commercial property and financial services companies. Other key bodies involved are the London Stock Exchange the British Property Federation and Reita. The Reita campaign was launched on 16 August 2006 by the REITs and Quoted Property Group, in order to provide a source of information on REITs, quoted property and related investments funds. Reita's aim is to raise awareness and understanding of REITs and investment in quoted property companies. It does this primarily through its portal www.reita.org, providing knowledge, education and tools for financial advisers and investors.[citation needed]

Doug Naismith, managing director of European Personal Investments for Fidelity International, said: "As existing markets expand and REIT like structures are introduced in more countries, we expect to see the overall market grow by some ten percent per annum over the next five years, taking the market to $1 trillion by 2010."[citation needed]"

but the VIs don't get the anticyclical nature of them:

http://m.propertyweek.com/news/residential-reits-continue-to-stumble-over-trading-hurdle/5017703.article

The government’s plans to remove the biggest legislative hurdles to the creation of residential REITs have not gone far enough, experts warned this week

In March’s Budget, the government announced a raft of measures to make it easier for residential property companies to become REITs, including scrapping the 2% conversion charge and reducing stamp duty for bulk purchases of property.

One hurdle for the creation of residential REITs remains: the restriction on the amount of trading property a REIT is allowed to hold. As investment vehicles, REITs are obliged to hold on

to stock rather than trade it – 75% of their profits must come from rental income, not from trading properties.

Residential investors would find it difficult to set up REITs under these rules, because they rely more heavily than their commercial property counterparts on trading. Nick Jopling, executive property director at listed landlord Grainger, which is not a REIT, said: “Much of Grainger’s income relies on trading. We’ve already said we’d look at REITs and the current amendments will not change that.”

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What is a REIT?

Real Estate Investment Trust

As I understand it, investors put money into the trust, which buys properties to let. 90% of the income (rents, management charges etc) goes to the investors, and corporate taxes are avoided.

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In the UK we call it property, so really they should be called PITs - which sounds about right.

'just more government backed ways to support assets prices by giving tax breaks to big landlords and property "investors".

Edited by Constable

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interesting there's no response/opinion, this really is under the radar

Probably because most people don't know what they are, I'm not entirely sure that I do!

What you've posted above does imply, to me, is that the disconnect between housing prices and rents is so large that a residential REIT is not a viable proposition at the moment. I can't think ATM what the implications of that might be, but I'm sure there are some.

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Probably because most people don't know what they are, I'm not entirely sure that I do!

What you've posted above does imply, to me, is that the disconnect between housing prices and rents is so large that a residential REIT is not a viable proposition at the moment. I can't think ATM what the implications of that might be, but I'm sure there are some.

as i understand it, some possible REITs are looking into buying unsold newbuild blocks of flats at fire sale prices, where the yield and efficiencies of volume stack up

but yes, more broadly, institutional investment won't take off if yields do not compare well against other assets, even tho there will be an entry point at some stage simply based on the potential for asset-diversification

my guess is they properly get going around 2015

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In the UK we call it property, so really they should be called PITs - which sounds about right.

'just more government backed ways to support assets prices by giving tax breaks to big landlords and property "investors".

which you can buy shares in yourself, and anyway, the tax breaks are nothing special compared to Owner Occupier tax breaks

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.... and corporate taxes are avoided.

As far as I can see the REITs are another example of Gordon Brown's love for off balance sheet financing.

eg: you have a industrial estate worth £1bn, which earns income of say £10m p/a on which you pay tax of £3m p/a.

Gordon says: pay me a £20m "conversion charge" and I'll let you off paying tax on the income forever.

Net result, this year's tax income is £20m up but every other year is £3m down.

So you look brilliant but you leave a big mess for the next lot to clear up.

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Anybody knows if REITS are levered?

they tend towards collateralised loans across the portfolio on a revolving facility (with review points) or term facilities; and generally with interest rate swaps in place, held by the PropCo that has turned itself into a REIT. The loans will have LTV levels and also covenants relating to interest cover provided by rent.

they can hold debt against specific assets within the REIT structure if project specific project debt is more desirable

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The new 'council house'.

Developers build en masse for these REITs.

Supply increases but private ownership re-sale market supported.

Pension funds get a nice 'safe' long-term yield investment vehicle.

Banks don't have to fanny around increasing lending to individual FTBs on 95% LTVs and have all the hassle of that.

REITs might even securitise some of this stuff and flog it to the Chinese in due course to absorb trade deficit flows.

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In the UK we call it property, so really they should be called PITs - which sounds about right.

'just more government backed ways to support assets prices by giving tax breaks to big landlords and property "investors".

in the uk its also sometimes called secured housing.

some call it commercial land. ;)

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they tend towards collateralised loans across the portfolio on a revolving facility (with review points) or term facilities; and generally with interest rate swaps in place, held by the PropCo that has turned itself into a REIT. The loans will have LTV levels and also covenants relating to interest cover provided by rent.

they can hold debt against specific assets within the REIT structure if project specific project debt is more desirable

That's pretty interesting thanks.

It sounds like they could be a good way to get property exposure without risking more than the capital invested.

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That's pretty interesting thanks.

It sounds like they could be a good way to get property exposure without risking more than the capital invested.

Commercial property - yep. Take a view on what you'd like your portfolio (and its management) to look like and take your pick. Oh, and I don't hold any, but I probably should.

Residential - well, let's wait and see.

Who is lobbying government on this? Residential REITS would make an ideal opportunity to review landlord-and-tenant law: better rights for good tenants at the same time as effective measures for landlords against bad tenants. Especially an end to the idea that a longer notice period than two months implies a landlord might be stuck 'forever' with a delinquent tenant.

[edit to add] If residential REITs happen I'll definitely want to invest as a hedge against HPI.

Edited by porca misèria

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The new 'council house'.

Developers build en masse for these REITs.

Supply increases but private ownership re-sale market supported.

Pension funds get a nice 'safe' long-term yield investment vehicle.

Banks don't have to fanny around increasing lending to individual FTBs on 95% LTVs and have all the hassle of that.

REITs might even securitise some of this stuff and flog it to the Chinese in due course to absorb trade deficit flows.

Yes brilliant plan. It's almost wearying to think you are absolutely right. The canibalisation of the nation continues.

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Cannot be good news for small scale BTL landlords.

These REITs will escape CGT, tax on rental income and pay less SDLT, therefore they can afford to lower their rents to win the tenants. More voids for small scale BTL landlords until they are forced to sell and the REITs scoop their properties up.

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Commercial property - yep. Take a view on what you'd like your portfolio (and its management) to look like and take your pick. Oh, and I don't hold any, but I probably should.

Residential - well, let's wait and see.

Who is lobbying government on this? Residential REITS would make an ideal opportunity to review landlord-and-tenant law: better rights for good tenants at the same time as effective measures for landlords against bad tenants. Especially an end to the idea that a longer notice period than two months implies a landlord might be stuck 'forever' with a delinquent tenant.

[edit to add] If residential REITs happen I'll definitely want to invest as a hedge against HPI.

for commercial property the nice thing about REITs traded on the public markets is that you can play the market timing argument extensively, as they tend to trade at a discount to NAV (net asset value) in bear markets, and a premium in bull markets, so you get the NAV bounce, plus the switch from discount to premium. I appreciate you can play this strategy in most markets.

as to how to tell the bull market conditions, there are lots of measures, but a good one is when yields (initial yields) fall below the gilt rate; ie a reverse yield gap, which is predicated on higher levels of rental growth or developments profits etc etc. These conditions whilst lasting for different periods of time inevitably end in price declines.

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Hmm, still don't get the point of these. Why do they need fancy tax breaks and asset / debt rules (sorry, not sure of the correct term here) over and above say, an investment fund that specialises in property companies?

And the UK already has large institutional landlords - housing associations. But I guess you can't buy, sell, buy! buy!, sell! those as easily so the spivs aren't as interested in them.

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Cannot be good news for small scale BTL landlords.

These REITs will escape CGT, tax on rental income and pay less SDLT, therefore they can afford to lower their rents to win the tenants. More voids for small scale BTL landlords until they are forced to sell and the REITs scoop their properties up.

Agreed.

The cost of capital for a REIT is very low compared to the cost of capital for most amateurs.

The bad news is that property will migrate from weak hands to strong hands over the next 2 decades or so which will reduce supply for owner occupiers.

The good news is that the professionals will not overpay for property which should drive yields higher and prices lower.

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Hmm, still don't get the point of these. Why do they need fancy tax breaks and asset / debt rules (sorry, not sure of the correct term here) over and above say, an investment fund that specialises in property companies?

And the UK already has large institutional landlords - housing associations. But I guess you can't buy, sell, buy! buy!, sell! those as easily so the spivs aren't as interested in them.

The tax breaks are swings-and-roundabouts. You don't escape tax, you just opt to work under a different tax regime. Distant analogy: self-employment vs PAYE.

Housing associations are a specialist form of social engineering. As with council housing, it's only open to a privileged few.

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Agreed.

The cost of capital for a REIT is very low compared to the cost of capital for most amateurs.

The bad news is that property will migrate from weak hands to strong hands over the next 2 decades or so which will reduce supply for owner occupiers.

The good news is that the professionals will not overpay for property which should drive yields higher and prices lower.

It's all about providing a return for all the money that has been created in the last few years.

The rentiers are always out looking for new sources to tap. Privatisations, public-private partnerships, outsourcing, etc. REITs are simply another way to package up a safe and steady revenue source in a form that's convenient for large capitals to invest in.

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The tax breaks are swings-and-roundabouts. You don't escape tax, you just opt to work under a different tax regime. Distant analogy: self-employment vs PAYE.

Housing associations are a specialist form of social engineering. As with council housing, it's only open to a privileged few.

So, could I buy my own house via a shell REIT, or perhaps a village could do it in a kind of co-op venture? Stretching the analogy: like a single contractor opening their own Ltd. company?

The whole idea stinks of one rule for the plebs and another for big capital.

Dunno about social engineering - isn't that what large institutions end up doing simply by the fact they're so large? Presumably a residential based REIT would have certain criteria for its tenants, so it would be engaging in social engineering as well, just with different values to a housing association.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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