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Lords criticise 'complacent' treasury over failure to create residential reits

The House of Lords select committee on Economic Affairs has criticised Government complacency over its support for real estate investment trusts (Reits) such as British Land, Hammerson, Land Securities, Segro and Liberty, saying that the lack of residential Reits is a ‘policy failure’.

In a report on the Finance Bill published yesterday and welcomed by the British Property Federation (BPF), the Lords backed property industry demands for action to encourage new Reits into the regime and support existing ones through relaxation of rules on matters such as income distribution.

Property leaders want policy changes to encourage the emergence of new Reits and specifically residential vehicles as nearly all 21 current Reits are made up of previously existing listed commercial property firms, with all consisting solely of commercial real estate.

The report criticised the official attitude to growing the Reit sector and encouraging the emergence of residential Reits, saying it seems “to have bordered on the complacent and unduly cautious.”

The Lords recommended that the detailed proposals put to the committee by BPF and others to make the regime more accessible for new entrants “should be investigated as a priority,” dismissing government claims that it would be “premature” to carry out a major reform of the Reit regime to stimulate growth in the sector.

The report is particularly sympathetic to industry lobbying for changes to the regime to encourage the emergence of residential Reits, branding the fact that none have so far been created as a “policy failure.”

On crisis-related measures for which the industry has lobbied – such as relaxation of the mandatory distribution of 90% of property income profits to allow REITs to conserve cash prudently – the committee rejected Government claims that they would undermine the fundamental design of the REIT regime, calling instead for government “to look again with greater sympathy at the proposals by the representative bodies”.

While the Lords concluded that UK REITs “have failed to live up to expectations”, they attribute that failure to a combination of “economic circumstances” and “structural defects” in the legislation, and point out that measures suggested by industry representatives “could have helped…without damaging the objectives of the scheme or risking significant tax loss.”

Peter Cosmetatos, BPF director of finance policy, said:

“This is a thorough and thoughtful report that is a ringing endorsement of our efforts to get the government to adopt a more proactive stance to listed property. It is vital we look at strategic changes to help Reits cope with the downturn. We were particularly disappointed at government’s failure to take forward any of the targeted crisis-related measures we pressed for ahead of the Budget. We had advocated measures specifically designed to provide the maximum support to business in these difficult times at minimum cost to the Exchequer.

"It is not too late for the government to include a small number of important measures in the Finance Bill, and we urge the government to recognise the growing political, as well as industry, pressure for it to do just that.”

Notes for editors

Read the report: http://www.publications.parliament.uk/pa/ld/ldeconaf.htm

The committee had received evidence from Treasury and Revenue officials, as well as from industry bodies like the BPF. Those giving oral evidence included British Land finance director Graham Roberts on behalf of the BPF and Rosalind Rowe of PricewaterhouseCoopers on behalf of the Rics.

The BPF and Rics work together on Reits issues under umbrella group the Property Industry Alliance, which also includes the IPF, BCO and BCSC.

For more information and all PR and media queries, please contact Andrew Teacher, Head of Media, on 020 7802 0113/ 07968 124545/ ateacher@bpf.org.uk