Britain: Admission race to stock exchange

Knut UNGER, 2007

Lobbyists for International Financial Trade have held doors open for each other at EU Governments Departments and Ministries during the last few years. Searching for new opportunities for financial investments in order to escape from the bursting housing bubble in the US their view naturally focuses in the largest real estate markets in Europe, which still do not have national REITs: UK and Germany.

Since about 2004 REIT-lobbyists were forcing the Blair and Schroeder Governments into an admission race and caused a crisis. In order to guarantee taxation of REITs profits by foreign investors, hundreds of agreements for double taxation would have to be changed. Instead, REITs rules in the UK are to be changed now: A single investor can only own 10% of a REIT, and mandatory profit sharing are to be increased to 95%. The consequence: there’ll be less left to reinvest into those properties, and even part of the Finance Lobby now talks about the ‘bleeding of real estate’.

For January 2007 the British government plans to introduce REITs. They will basically follow the US model, but private REITs will not be allowed. Companies listed at Alternative Investment Market (AIM), which include off shore companies, will not be allowed as REITs. Social housing associations are planning to transform themselves into REITs because they want to profit from the tax exceptions.

A number of the London Stock Exchange’s current quoted property companies have said they are seriously considering becoming REITs. The chief executive of the largest European real estate company - Land Securities Group – “plans to write a check to the British government for more than £270 million, or $507 million - the price for converting into a trust”, press wrote in October 20061. “In return, the government will give Land Securities Group, based in London, tax breaks worth at least £750 million over the next decade.”

Experts expect that investments in British REITs will mainly come from the US, Australia and the Middle East. Many of these investors will use the British REITs as a platform for real estates in other countries, for instance Ireland.

John Kilby, Real Estate Partner, Deloitte UK, said: « REITs will be a valuable tool to access the UK property market and will certainly be interesting to Irish investors. In addition, expected changes to legislation surrounding the regime will remove significant barriers to entry - recently the UK Government announced that the restriction on individuals owning more than 10 per cent of a REIT will be lifted. This will give a tremendous boost to the market as many real estate companies have significant individual or family shareholdings and this will make it much easier for them to convert. To date, approximately 14 listed property groups have already made positive statements about plans to enter the REIT programme from the time of its commencement. »2

“Once the U.K. REIT market is established, we expect London will attract a wide range of property companies from both the U.K. and abroad that wish to securitize their assets through a LSE listing as either a REIT or a similar listed entity,” Haddock says. The total investment grade commercial real estate market in the U.K. is estimated to be £600 billion ($1.1 trillion U.S.), with only £40 billion ($70 billion U.S.) of the total currently in the securitized real estate market.” Haddock says REITs in the U.K. are likely to attract international investors looking to own property globally. “From the investors’ point of view, we think that London, with its $14 trillion U.S. assets under management is best positioned to become the most liquid market for REITs and other listed property assets in Europe,” he says. “London has the capital markets expertise and the lawyers, surveyors and other professionals needed to make a successful listed property market. In addition, London’s international experience investing in overseas markets makes it the most attractive market for REITs that plan to include property from overseas.”3

Among the companies which prepare for REITs are even legally regulated housing associations which say as REITS the will reduce rents because of the tax reduction.

2006 18 large housing associations lobbied for REITs. The group is pressing for a two year tax exemption on any interest on money put into the trust to refurbish or redevelop homes and other tax privileges for residential REITs in the UK. Later the consortium received a letter from the Department for Communities and Local Government to say that in principle the trusts should be able to receive social housing grant. The housing association REIT is made up of A2, Affinity, First Wessex (formerly Atlantic), Flagship, Genesis, Hanover, Harvest, Network, Nomad, Peabody, Riverside, Rooftop, Servite, Shepherd’s Bush, Sovereign, Swan and Thames Valley.4

The introduction of British REITs at the beginning of 2007 seems sure. Publicity in the UK media only focuses on the financial interests. Nevertheless grassroots tenants groups are very concerned.

In October 2006 the issue was discussed among German and London tenants. Later the London Tenants Federation published a press release:

“The London Tenants Federation (LTF) is lobbying for regulation to prevent the application of Real Estate Investment Trusts (REITs) to public sector and not for profit housing. They have joined forces with German tenants, some of whose representatives attended the LTF’s recent annual conference and who are lobbying similarly in Germany.

New UK legislation will see the introduction of REITs in January ’07. The LTF fears they could lead to a massive concentration of financial power and anti-democratic political influence, making housing markets dependent on international speculation bubbles.


The London Tenants Federation, which has links with other tenants’ organisations internationally, says the evidence from other countries gives them cause for alarm. In the United States and France, REITs have lead to higher rents and to asset stripping; where the most profitable housing has been enhanced at increased rents, whilst the rest has been left to decay or emptied for redevelopment or demolition.

The London Tenants Federation fears the worst in the capital, where property and land prices are already sky high. They say without regulation, the new legislation could lead to large-scale privatisation, the splitting of rented housing into individual leaseholds and the replacement of social housing with expensive blocks of flats. They say that evidence elsewhere suggests further consequences could be forced evictions and the loss of social accountability.

The London Tenants Federation aims to encourage wider debate and awareness of the issues among London tenants. They want regulation of REITs to prevent their application to public sector housing, and for the protection of the democratically controlled and not for profit housing sectors. Along with German tenants they are asking for the UK and German governments to legislate to control international real estate investment; preventing their encroachment into public housing.”5