Property group questions ability of REITs to attract investment in social homes
Call for greater clarity over REITs
The British Property Federation has called for greater clarity from government over the potential relaxation of rules on real estate investment trusts in order to attract new investment into social housing.
The Treasury and Communities and Local Government department jointly launched a consultation on REITs earlier this month with the specific aim of encouraging institutional investors to inject capital into the sector. REITs are tax-efficient property investment companies of which there are currently 24 in the UK, worth £23 billion.
But the BPF has said that it is ‘a little bit wary’ about the wording of the consultation, which references the introduction of social housing REITs.
‘We could do with some more clarity about what they mean by social housing REITs,’ said Ion Fletcher, senior policy advisor at the BPF. ‘If that means that social housing REITs can only have social housing [properties] in them that might limit it.’
Mr Fletcher added that investors - such as pension funds and insurance companies - may be deterred by the lower revenue returns on offer from social housing.
‘Could it [a social housing REIT] be majority social housing or could it be majority market rent but where it is used to finance social housing? I think this is absolutely key because it’s all about whether we can attract enough outside investment.’
Pension funds already invest in social housing through bonds issued by housing associations, which typically offer returns of between 5 per cent
and 6 per cent at current prices.
Mr Fletcher said investors would expect to see similar yields from REITs.
Meanwhile, the National Housing Federation has formed a working party to discuss a response to the REITs consultation from its housing association members. It will hold its first meetings with Treasury and CLG next month.
‘Potentially, REITs represent a significant opportunity for housing associations to attract new funding to develop social housing,’ said Joseph Carr, finance policy leader at the NHF.
‘Throughout the REIT consultation, we’ll be talking extensively with our members to identify ways of removing the barriers to a social housing REIT and making the model a success.’