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REITs: Attracting Investors To Property Market
Taxand Ireland investigates the new focus on REITS.
The Minister proposes to provide for the establishment of Real Estate Investment Trusts (REITs). Qualifying income and gains of a REIT will be exempt from corporation tax at the level of the REIT company. The REIT will be required to distribute profits annually for taxation at investor level. Therefore, they allow participants to invest in a professionally managed portfolio of real property providing an after tax return for investors similar to that of direct investment in property. The resulting regular income stream is attractive for all investors.
The REIT model is attractive to large-scale institutional investors worldwide. It is seen as a lower risk property investment model and has the following advantages:
- Diversification of investment into a pool of properties
- Reduced exposure to negative equity risk
- Protection of income stream to investors due to limits placed on borrowings by REITs
- Liquidity for investors arising from the ability to sell shares in a listed REIT at any time
They are also attractive for small investors who will be able to participate in the property market for the price of a single share but at the same time having access to returns from high quality investments which may have previously only been an option for large investors.
The Irish Government is hopeful that the establishment of REITs will complement the significant existing international funds industry located in Ireland and will attract new sources of capital to the Irish property market. Multinationals should investigate and judge if these new measures will be favourable to their company.