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About REITs
► What are PIFs?
PIFs (Property Investment Funds or Trusts) were the working name for a new type property investment vehicle coming to the UK based on the US REITs (Real Estate Investment Trusts) and was approved by the Chancellor in April 2006.
In the budget Gordon Brown also renamed them UK-REITs. Which is odd as we do not usually use the term Real Estate.
► Why are REITs useful?
1. REITs are a way to extend the ability of people to invest in the property market. They provide lower risk, and returns, by spreading your investment across property sectors and geographic locations.
2. REITs are tax efficient since they are tax transparent, and not taxed at fund level. Therefore the investor receives the interest gross and accounts for tax depending on his own circumstances.
REITs can be considered as the Unit Trusts of the property market, and in the same way as Unit Trusts for the shares market, the Investor has to pay management fees, and because the risk is spread the returns are lower.
A REIT must be quoted on the London Stock market, so that shares may be bought and sold, and can be formed in two ways;
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An existing property investment company can convert to a listed Real Estate Investment Trust.
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A financial institution may launch a new Trust
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There are a number of restrictions in the way a REIT is managed and in the composition of its ownership. See our article on REITs for more details
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► Why are PIFs problematic?
REITs are problematic, in that they need a balanced portfolio across the commercial, retail and residential sectors. Whilst there are currently significant holdings in commercial and retail, the privately rented, residential sector investment properties are mostly distributed through thousands of landlords holding 3 or fewer properties.
As the REIT managers seek to buy out the buy-to-let investor and develop their portfolios we will see a sustained rise in prices over the next 5 years further disadvantaging the first time buyer.
Remember REITs own the property and then they rent it to occupiers. It is the same model as Buy-to-Let with the same costs and the same risks and problems.
For more information please see our Joint Equity Briefing note on REITs
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