Law firm tells Whitehall rates on REIT ownership need to be relaxed
No new laws needed for REITs
The law firm looking to launch the first social housing real estate investment trust has said there does not need to be any further primary legislation to support the model.
In its submission to a Treasury and Communities and Local Government department consultation on social housing REITs, which closed at the end of June, Winckworth Sherwood said that there are no major barriers preventing housing associations from forming tax-efficient vehicles capable of attracting institutional investment.
However, the firm said that current rules requiring shares in REITs to be actively traded would need to be relaxed before major investors such as pension funds or insurance companies would want to invest in the company.
REITs are required to be public companies, meaning that shares in them must be tradeable. In its submission, Winckworth Sherwood argued that the presence of institutional investors as owners would mean that social housing REITs would automatically ensure a diversity of ownership.
The submission said: ‘On the basis that institutional investors represent broader underlying investors and/or stakeholders [we] do not see why a trading requirement exemption cannot be granted to a REIT that has a significant institutional shareholder base.’
In May, Inside Housing revealed Winckworth Sherwood’s plans to launch a REIT involving 10 south-east housing associations. Depending on the outcome of the consultation, the REIT could list on the stock market in
The company would offer investors returns of around 4.5 per cent.
Earlier this month, the British Property Federation expressed doubt as to whether returns such as those from a social housing REIT would be sufficient to attract institutional investment.
In its response to the consultation, the Chartered Institute for Housing echoed calls for changes to rules governing REITs, asking for ‘additional flexibilities’ to be included in the legislation.
The changes called for by the CIH included allowing REITs to divert profits toward house building instead of distributing it to shareholders.
The 2012 Finance Bill included several changes that should open up the market to social landlords, including the scrapping of a 2 per cent charge to set up a REIT.
Places for People so far is the only housing association that has said it would launch a stand-alone REIT, given the necessary changes to legislation.
The 62,000-home landlord plans to move as many as 5,000 properties, worth up to £500 million, into a REIT, as long as new legislation allows it to charge affordable rather than social rent.