Thursday, 18 September 2014

Providers consider REIT move to fund building

Social housing providers are considering moving some or all of their stock into real estate investment trusts when the rules on the tax efficient vehicles change later this year.

A survey of 60 housing providers conducted by accountancy and business advisory firm BDO found 56 per cent would consider using REITs to raise funds or spread risk.

REITs are able to avoid business taxes that apply to other organisations, but the rules governing their formation have meant they are mainly applicable to large commercial property companies.

This is due to change from July when the Finance Bill 2012 is enacted, reducing some of the barriers to entry.

The possibility of setting up a REIT was particularly attractive to larger landlords, with 78 per cent of the survey respondents that have more than 10,000 homes expressing an interest.

BDO has produced a report based on the survey. Plugging the affordable housing funding gap looks at how social housing providers are responding to the need to find new ways to finance their development programmes following cuts to government grant and less favourable conditions for borrowing.

It found bonds are the most popular option, although BDO notes these are usually only suitable when a landlord wishes to borrow more than £100 million.

Philip Rego, partner and head of BDO’s social housing practise, said: ‘It’s not for everyone, but capital markets provide a definite alternative to bank debt financing and this option should be explored by those social housing providers that require capital to fund expansion.’

Amicus Horizon became the latest housing association to enter the bond market with a £100 million issue yesterday. This followed issues by Circle and Radian in recent weeks, for £250 million and £75 million respectively.

Readers' comments (3)

  • And moving their HQ's to the Cayman or the Turks and Caicos islands?

    The logic is inevitable.

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  • Chris

    I'm not sure that they could afford the staffing costs in such wage hotspots Michael - but they could claim, like Google, that most of their business is offshore so that they do not need to pay tax on it.

    However, as REIT allows tax avoidance anyway it is a moot point.

    I suppose in a way, it could be argued, that allowing the developing RSl to keep what would otherwise have been paid as tax means it does not have to be paid to them as grant. The danger of course is the government can demand to see where grant is spent, claim it back, and recycle it. Like HB, the unpaid tax is an annual gift that can not be claimed back and there is not control what it is actually used for.

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  • REITs are not a tax avoaidance mechanism, they are a tax transparency meachanism. The REIT pays no tax itself ; the people who recieve income from it pay the tax instead. it allows peole to invest in housing without double taxation.

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