Property shares falter after Reits decision put off

Investment property news: FINANCIAL TIMES

The property industry put on a brave face after Gordon Brown failed to outline any plans for new real estate investment trusts (Reits).

Shares in many property companies started the day strongly but lost ground after the pre-Budget report said there would be no decision on Reits this year. Instead, legislation is now one-and-a-half years away - July 2006 - at the earliest.

The Government has been consulting on introducing such tax-transparent vehicles, which it calls property investment funds. These would not pay any corporation tax in return for distributing most of their income to shareholders.

The Government recently pledged to continue looking at the issue and launch another consultation in next year's Budget. "We are being very positive about it because I think it shows that the Treasury appears to remain committed to the concept of Reits," said Liz Peace, chief executive of the British Property Federation.

Charles Beer, tax partner at KPMG, said there would be "severe disappointment" among many people. "It did seem rather wishy-washy wording, saying they still think it may be a good idea."

Phil Nicklin, tax partner at Deloitte and a member of the industry steering group on Reits, said the timing was of no surprise to those who had been discussing the issue with government. "People who had an inside track and saw this becoming more and more complex knew that to expect government to invent a commercial framework for this and a tax framework by March was ridiculous."

Edmund Craston, European head of real estate at UBS, said it was not a great surprise that Reits would not happen this year. He was reassured that ministers were still committed to introducing the vehicles.

Property experts had been speculating that there would be no time in the current Parliament to legislate on Reits, given the expected election this summer.

Andrew Hynard, head of capital markets at Jones Lang LaSalle, the agency, said the recent statement was not a big surprise. "We had hoped to get something but expectations over the last few weeks had been managed downwards. People will be disappointed but it was always likely there could be a delay."

Meanwhile, planned tax breaks to encourage improvements to commercial property in run-down areas moved a step forward. The Inland Revenue launched a consultation on a proposed scheme to give 100 percent capital allowances for renovating or converting unused business premises in disadvantaged areas.

The capital allowances are likely to apply to properties in the 2,000 enterprise zones that were set up several years ago. These are already exempt from stamp duty on commercial property deals. The tax break must still get through strict European Union state aid rules.

- 10 March 2005