A useful new website can help you decide whether you want to invest in property via the new REIT vehicle.
Many private investors have put money into property in recent years, but, as an asset class, it isn't perfect.
If you want to invest in residential property, you could buy a flat or a house, perhaps using a buy-to-let mortgage. The problem with this approach is you may end up putting a big chunk of your wealth into one asset, which can be risky. You'll also have to deal with the hassle and cost of maintaining the home. And, on top of that, residential property is fairly illiquid -- it can take months to sell up.
If you want a stake in commercial property, you can invest in one of the big real estate companies such as Land Securities (LSE: LAND). The problem with buying shares in the big property companies is that you're hit by double taxation. The company has to pay corporation tax on its rental income and any chargeable gains, then the shareholder has to pay income tax on dividends and capital gains tax too.
All this will change on January 1st next year when REITs (real estate investment trusts) are introduced. The trusts won't be paying corporation tax so private investors will be able to invest in commercial property and only pay tax once.
If you're tempted to invest in a REIT, take a look at Reita, an industry website which explains much more about this investment vehicle.
Perhaps the most interesting section of the website is a rundown on which property companies are planning to convert to REIT status. Here are some of the most interesting names from Reita's list:
Companies intending to convert
| Share | Share Price £ | Forecast NAV per share (current) £ |
|---|---|---|
| British Land (LSE: BLND) | 13.64 | 16.29 |
| Brixton (LSE: BXTN) | 5.31 | 5.45 |
| Hammerson (LSE: HMSO) | 12.91 | 14.24 |
| Land Securities (LSE: LAND) | 19.50 | 21.23 |
| Liberty International (LSE: LII) | 11.35 | 13.55 |
| Slough Estates (LSE: SLOU) | 6.63 | 7.78 |
Companies unlikely to convert
| Share | Share Price £ | Forecast NAV per share (current) £ |
|---|---|---|
| Capital & Regional (LSE: CAL) | 10.40 | 12.14 |
| Helical Bar (LSE: HLCL) | 3.96 | 3.33 |
| Grainger Trust (LSE: GRI) | 5.20 | 5.81 |
Traditionally, property companies trade at a discount to their net asset values and part of the justification for that has been the double taxation issue. It's interesting to note that all of the above companies that are expected to convert are still trading at a discount to their forecast NAV.
However, in most cases, the discounts aren't that great, so I think you can argue that most (perhaps all) of the good news on REITs is already in the share prices. You also need to remember that yields on commercial property are on the low side at the moment. So with interest rates rising, commercial property values may fall or at least stagnate.
That said, I've no doubt that REITs will be a success in the long-term. Don't forget that REITs can invest in residential property too, and you can place them inside an ISA or SIPP wrapper. They're potentially a great way to diversify your portfolio without being illiquid.
And if you want to find out more, visit the Reita website..
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