There has been a considerable amount written over the past year about the advent of REITs, which come into effect on 1 January 2007.
Most of the commentary surrounding real estate investment trusts (REITs) has been in relation to commercial property, with many of the top property companies declaring their conversion intentions. It is only recently that more attention has been paid to the prospects of a REIT for social housing.
- A number of housing associations are now considering putting stock into a REIT where they see that there may be certain advantages presented by this strategy. RSLs can get stock off the balance sheet to improve gearing. Initially, this might include difficult housing stock, but future development could be for key worker, student accommodation, retirement homes, etc.
- RSLs reserve the right to manage the stock contributed in order to secure income, and they certainly have the skills to do so.
- The pooling of resources with other RSLs should produce cost savings and allow for more diversification of activities, as a REIT could take on projects which are normally outside the remit of RSLs.
- Investors are likely to find a social housing REIT attractive, as the stock will be managed by experienced people in the sector and should provide a secure rental stream that allows for almost guaranteed yields with good prospects for growth.
However, it is not all plain sailing and there are a number of obstacles, particularly on the tax front, which still need to be ironed out. For this reason, it is unlikely that a social housing REIT will enter the market with the first wave on 1 January 2007. But, subject to the outcome of ongoing negotiations between the various interested parties, and a possible relaxation of some of the rules, REITs for RSLs will be a viable option.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.