UK/US - Successive governments have stubbornly refused to prioritise the necessary statutory changes to enable a US-style REIT market to develop, despite a progressive increase in the strength of the lobby, writes the Association of Property Unit Trusts.
Almost in parallel, investors have increased their demand for tax-transparent vehicles in recognition of the advantages of co-investment, and pooled investment specialist management.
As a result indirect investment has been a significant beneficiary resulting in the sector almost doubling in size over the last 15 years.
There are three main types of investment vehicle available to investors which satisfy their principle investment criteria of tax efficiency, relative liquidity and specialist asset management.
The Property Unit Trust, Limited Partnership and Managed Fund now have a total value in excess of the listed property sector (£24bn verses £20bn approx.).
The growth prospects for the indirect investment vehicle are likely to continue to be positive, along with an increasing number of classes of investors who become qualifying investors and aware of the advantages of gaining an exposure to the sector indirectly rather than through the traditional direct method.
There are, however, differences in the structure and operation of the three main investment vehicles.
Limited partnerships (LPs) are generally regulated by the FSA and enable a group of investors to share in the ownership of a group or single asset. Although generally tax-transparent, a tax liability can arise when a partner’s share in the LP is altered. Limited partnerships are usually for a fixed term (circa five years), which can limit liquidity.
Managed property funds are usually administered by insurance companies and can have a mix of retail and institutional investors.
Investors have to deal through the manager for secondary trading and do not receive an income distribution.
The PUT vehicle has become quite diverse and the flexibility of its structure has allowed it to develop to accommodate a variety of investor types so that there are now four categories: authorised, exempt, non-exempt and offshore.
The most recent development has been for previously exempt UK-based funds to go offshore, which enables the UK-exempt pension funds to sit alongside a wider range of UK investors (including private individuals) and international investors.
The Association of Property Unit Trusts, through its code of practice and profile, is highly regarded by regulatory bodies and investors seeking a best practice standard to measure transparency, pricing and administration against.
The challenge for APUT in the future, with an increasing diversity of investor type and investment vehicles, is to choose whether to seek to encompass these new vehicles in its membership and become more consumer-focused or remain representative of the PUT sub-sector.
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