UK - Pension schemes are deserting quoted property investment firms due to the heavy tax burden imposed on them, ABN Amro Bank claims.
ABN Amro European head of real estate Phillip Rose said the heavy taxes incurred from investing in listed property companies was driving investment into unquoted funds.
And research from ABN Amro and the Investment Property Databank found that the total value of European property held in unquoted funds has soared from £4bn to £18bn in the last three years.
Rose said: “There is a fundamental inefficiency in investing through listed real estate companies. When you invest through a company, it will have to pay 30% tax on all of its earnings and on any capital gains that it makes. There is no way for the investor to reclaim that 30%.”
He added that investors were also being lured away by the fact that unquoted funds can be more focused on outperforming sectors, such as retail property.
Schroder Property Investment Management head of research and strategy Bill Hughes agreed. But he also pointed out that unquoted property companies offered pension schemes stable investments – a quality that is missing from traditional quoted companies.
Hughes said that as investors in quoted companies were essentially using equities to fill their property allocations, their investments are subject to market volatility. That, he said, goes against the principal aim of real estate investment, which is stability and income.
However, Baring, Houston & Saunders investment relations director Peter Macpherson claims the changes are due to investors increasing their property allocations.
He said: “I’m not sure it is that investors are deserting quoted firms – it is just that people are going into the unquoted market.”
Hughes, though, claimed the unquoted market had now become the preferred choice of real estate investors.
He said: “Given that the quoted property market is now so small – below 2% – its started to become too small for some investors to consider.”
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