Property Groups Warn UCIS Regulation Plan Could Hurt REIT Industry

on Nov 19, 2012
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UK property companies have raised fears that the Financial Services Authority’s (FSA) planned crackdown on unregulated collective investment schemes (UCIS) could restrict retail investors from buying into REITs, The Times reported on 19 November 2012.

**Speculative Exotic Investments Make Case for FSA’s Clampdown**
Recently, a significant number of retail investors have suffered significant losses in speculative, illiquid investment products without understanding what they were buying. The FSA believes that about £4 billion has been put at risk through such unregulated collective investment schemes (UCIS) and similar investment products. Following a string of mis-selling scandals of investments in the likes of forestry plantations and fine wines, in particular, the UK regulator is consulting on how to restrict investors’ exposure to these schemes. For now, the FSA plan is to ban the promotion of UCIS and other “close substitutes” to ordinary retail investors. Under this proposed course of action, however, real estate investment trusts (REITs) — listed tax-efficient corporate entities that buy and develop property — could also be caught by the crackdown.

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The Times quoted a spokesman for the FSA as saying: “Some REITS may be included depending on their legal structure and if they are set up as a special purpose vehicle which is designed for investment purposes.” Yet the regulator’s representative noted that the possible move is still being consulted upon and no foregone conclusion has been made.

**UK Property Companies Raise Concerns**
With the possibility of the FSA’s regulation rules to affect them, real estate groups have voiced concerns that such a move would hurt the industry by making the sale of property stocks ordinary retail investors disproportionately difficult.
!m[FSA’s Clampdown on Exotic Investments Could Unfairly Impede REIT stock sales, British Real Estate Industry Fears ](/uploads/story/848/thumbs/pic1_inline.png)Arguing against the proposed measure, Britain’s third largest REIT Hammerson (LON:HMSO) underlined the investment structure’s safety. The company’s chief financial officer Timon Drakesmith said: ‘REITs are arguably the safest form of securitised real estate as they are mandated to distribute dividends and there is a high degree of scrutiny and oversight.” Meanwhile, a spokesman at Land Securities (LON:LAND), Britain’s biggest property company, added that the move being considered by the FSA“would almost seem to defeat the purpose why REITS were introduced in the first place, which was to make property investment more attractive to everyone.”

**Are REITs Exotic?**
While there is a real danger that the FSA to group REITs in the category of “close to the UCIS substitutes”, the British Property Federation (BPF) stated that REITs do not qualify as speculative or “exotic” investments. According to the organisation, which represents the interests of the UK property industry, “the majority of listed real estate companies are neither UCIS nor ‘close substitutes’, and the assets in which they invest — homes, office blocks, shopping centres and other buildings all around us — are tangible, easy to understand and decidedly ‘mainstream’”. The BPF also reminded that the REIT’s were introduced by the British government in 2007 with a view to offer a safe and attractive route for ordinary retail investors to get exposure to real estate assets. Accordingly, banning the promotion of this investment structure would be a “sad irony”, the organisation said.

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