Small and mid-sized property companies should take another look at real estate investment trusts as a viable business vehicle, says PKF Accountants & Business Advisers.
Jane Jackson, tax partner at PKF in Liverpool, said: "The government's draft legislation ticks all the boxes, opening up REITs to a much wider group of providers and offers a more diverse market for investors.
"The changes from April 2012 will make converting to REIT status much easier and more attractive. Removing the current 2% conversion charge, allowing REITs to be listed on the AIM and PLUS exchanges or overseas, and allowing cash to be classed as a 'good asset' will certainly encourage more businesses to consider adopting REIT status.
"The changes to the current exclusions for close companies will be particularly good news for investment managers and institutional investors. The draft rules specifically allow unit trusts, open-ended investment companies, pension schemes and insurance companies to manage their own REITs. Their investment experience should considerably increase competition in this market and I expect to see such providers teaming up with property experts to launch new REITs focusing on the residential property sector.
"Allowing a three-year grace period for converting companies to meet the 'non-close' company rule should also make it much easier for medium-sized businesses to split out their property investment operations and convert them into smaller REITs. The option of restructuring in this way relatively quickly could be especially attractive to property businesses under pressure in the current economic climate.
"Overall, this legislation may help to kick start developments in the UK property market. A depressed property market offers some great opportunities to those who have the capital to act quickly – setting up a new REIT could be the ideal way to secure that funding."