The positive impact of real estate investment trusts

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The European Public Real Estate Association (EPRA) has highlighted the effectiveness of using Real Estate Investment Trusts (REIT) as a major weapon in the battle for recovery in domestic national property markets.

The Savings and Loans crisis in America in the early 1990s was one of the first examples in which use of REITs helped recapitalise a property market after a significant downturn.

France and the UK are two examples of European countries that currently have successful REIT structures in place which have had a positive impact by channelling investment into all sectors of their property markets including housing, business premises and retail units.

Now Spain has been praised by EPRA for taking steps to implement a similar policy in order to reverse falling prices and reinvigorate its own market.

The chief executive of EPRA, Philip Charls, said: “The best way to attract domestic and international capital into real estate markets and so underpin banking systems that are laden with property debt, is to make the sector attractive to investors.”

The use of REITs in not a panacea and has its own inherent risks. The Financial Times reported that in many ways an REIT is essentially an equity and so can have a volatile performance.

In the case of Spain the government is attempting to minimise any risk by securing the system they are putting in place. In late December last year it was agreed that there would be no tax levied on profits as long as 80% of earnings are given to investors.

In doing this Spain has fallen in line with the rest of Europe by abolishing the flat tax regime which had proven unpopular.

Ireland, another European country whose property market has been hit particularly badly by the banking crisis, is expected to overhauling its own REIT system later this year.

For transferring money abroad, using a specialist currency exchange company is sure to save you money on conversion rates and interest costs.

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