Real Estate Investment Trust: info

The trusts offer investors easy access to pooled property investments, which have special tax advantages, for corporations investing in real estate for reducing or eliminating corporate income taxes. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

Individuals can invest in REITs by purchasing shares directly on open exchange or investing in a mutual fund specializing in public real estate. An additional benefit to investing in REITs is many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Equity REITs: Equity REITs invest in and own properties. Their revenues come principally from properties' rents. Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage backed securities.

USA

The USA Congress created REITs in 1960 to give anyone and everyone the ability to invest in large-scale commercial properties. Subsequently, REITs were introduced in the Netherlands and Australia as a means to invest in a portfolio of residential and commercial property.
They allow people with modest means invest in a diversified property portfolio Reits operate in most major western economies including Japan and the US
In the US Reits use 90% of their income to pay dividends to investors

In 1971 there were only 34 REITs with a capitalization of $1.5 billion. In 2001, the industry included 182 REITS with a market cap of $155 billion

A UK REIT will be in the form of a company but, importantly, not an Open Ended Investment Company (OEIC). The company must be publicly listed on a Recognised Stock Exchange. It must also be a tax resident in the UK and not be dual resident in other jurisdictions. These conditions must be met for a company wishing to become a UK REIT. The company must have only one class of ordinary shares in issue and no other classes of shares.

1. The company must have at least three properties in it’s portfolio throughout all accounting periods.

2. No individual or corporate body shall own more than 10% of the shares in the company.

3. The value of a single property must not exceed 40% of the combined value of all of the property business.

4. Within 6 months of the end of it’s accounting period the UK REIT must distribute 95% of the profits of the tax exempt business

In 2005 in his pre-Budget report last week the Chancellor announced a new tax efficient type of fund called a Real Estate Investment Trust or REIT for short. This will enable investors to access both residential and commercial property investments. It is likely that REITs will qualify as ISA investments, making their returns tax free.

In 2006 Shares in supermarket giant Tesco rose 3.36% to a record high on Friday after a report said it planned to unlock more value from its property assets.
The UK's biggest retailer was to place its £12bn ($21bn) freehold property into a real estate investment trust (REIT).

The legislation laying out the rules for UK REITs is due to be enacted in the Finance Act 2006 and will come into effect in January 2007.

Property Investment Funds (Pifs)

The property industry is eagerly awaiting an update on Property Investment Funds (Pifs), a new way of investing in commercial and residential property.

The trusts are already popular in many countries around the world, including Australia and US, where they are known as Real Estate Investment Trusts (Reits).

The trusts offer investors easy access to pooled property investments, which have special tax advantages.

Reits are firms that can trade property assets within their portfolio without paying corporation tax

Japan is one of a handful of nations in Asia with REIT legislation (other countries/markets include Hong Kong, Singapore, Malaysia, Taiwan and Korea), which permitted establishment in December 2001. REIT securities are traded on the Tokyo Stock Exchange, and most participants are Japanese conglomerates and foreign investment banks.

In the USA REITs generally pay little or no federal income tax, but are subject to a number of special requirements set forth in the Internal Revenue Code, one of which is the requirement to annually distribute at least 90% of its taxable income in the form of dividends to its shareholders.

In 2005 Hong Kong's first property investment fund, which was nearly scuppered by a legal action from a pensioner, has gained on its first day of trading.
Shares in the Link REIT, or Real Estate Investment Trust, rose as much as 15% to 11.80 Hong Kong dollars ($1.5). The fund will buy real estate such as car parks from the government and pay investors a fixed return from rents. However, the scheme was delayed by a legal case that complained it would push up rents and grocery prices.

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