The Growth of Socially Conscious REITs

The REIT brand is recognised and trusted globally – so let’s use it as a force for good in creating vibrant places, writes Jenny Brown, of Grant Thornton.

Real Estate Investment Trusts (REITs) have continued to rise in popularity since they came into force in January 2007.

Within a month, nine of the UK’s largest listed property companies had converted to REIT status and, fast forward 10 years, there are now more than 70 UK REITs.

A REIT can offer significant benefits for investors and operators alike.

The brand is recognised and trusted globally, with most major economies having an equivalent regime.

There has been a marked increase in the number of REITs coming to the market in the last five to six years, with more than 30 new REITs listing on the London Stock Exchange and raising more than £12bn of equity.

Our latest report, REIT’s as a force for good, shows that many new REIT’s are now focusing on specialist sub-sectors, such as healthcare and social housing, which meet increasing demand from investors for both a financial return and an investment that focuses on property with a social value.

The potential for REITs to meet the need for new homes in the current climate is gaining increasing interest.

A sustained shortage of government funding has forced many housing associations to take on more debt in order to develop new homes.

With the government’s aim of building 300,000 new homes each year, REITs offer investors an opportunity to be part of a financial solution to help provide more social and affordable housing by partnering with housing associations in innovative ways.

A number of new REITs are already emerging that are focused on residential property and they have seen strong demand from investors.

REITs potentially offer investors better returns than they would achieve by investing directly in the properties themselves, as well as the security and liquidity of the REIT structure.

REITs are well suited to act as the owners of property assets with a social role, by working in partnership with operators.

The collaboration between the two can provide property management expertise to complement the expertise of either public or private operators.

The lesson we can take from looking at international markets is that the government can do a lot to help stimulate investment in this area through the tax system.

Australia is facing an affordable housing shortage so the government has introduced new tax concessions to encourage REITs to invest.

Similarly, in Canada, a number of REITs focused solely on residential property are supported by significant tax advantages and these REITs have delivered some of the highest returns across the stock market.

All those involved in the UK market need to continue to build and maintain effective partnerships between REITs, developers and operators and focus on collaborating effectively.

The combination of their different expertise is vital to supporting innovative high quality schemes with a social purpose.

That will only happen if we raise awareness of the potential for REITs to deliver long-term social benefits and educate both investors and operators about the risks and rewards of the structure.

These partnerships will be able to seize the significant opportunity for REITs to build on their success and become a force for good in creating vibrant places in which people can thrive by meeting the country’s housing needs.

Government can also help support these developments by looking at further reforms to the REIT regime to widen the permitted activities in which they can invest.

Source: Jenny Brown, chief not for profit operating officer, Grant Thornton UK

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