Real Estate Investment Trusts - Research Paper Example

This paper examines both corporate strategic dimensions and organizational structural changes along with their impact on property-related and non-property-related investment vehicles in the UK since January 2007. It also makes a comparative assessment of investment outcomes which clearly indicates that UK-based REITS have adopted a market-correlated approach to increase investors’ gains with little regard for the strategic-operational environment and its multifaceted regulatory bottlenecks.

The conceptual framework of Real Estate Investment Trusts (REITS) in the UK has been characteristically shaped against the backdrop of an evolving unique property market investment paradigm vis-à-vis the diversity and complexity of non-property market investment vehicles that have hitherto dominated the UK investment scenario (Wyatt, 2007, p. 143). While still there is a considerable amount of confusion as to what REITS are able to accomplish on their own in a highly competitive strategically diverse highly risk-prone property investment market, there is an equally formidable quantum of hope on the part of the average property investor and the market analyst that the UK property market has the potential for growth and sustainability despite a global downturn and rising pessimism among investors in general.

This conceptual framework underlies the very organizational structure of the REIT industry and thereby influences its evolving strategic shape. Though the average REIT is structured in the same way as a private or a public company according to British law, there is a significant amount of variance in its capital structure and composition. For instance, in the process of distribution of profits, the REIT is obliged under the Finance Act of 2006 to withhold tax from profit distributions made to shareholders out of property-related investment profits. While REITS elect themselves to be rewarded with the privilege of being tax-exempted on profits made from certain property-related investments, they have little freedom by way of diversification of assets or portfolios.

Real estate investment vehicles as initiated under REITS have been noted also for their strategic emphasis on tradable shares whose prices are determined by free-market forces – demand and supply. Another inherent feature associated with them is tax transparency. Indeed the latter characteristic influences both demand for and supply of such assets despite a negative corollary associated with such declarations. For instance, the demand for such investment vehicles as properties could be attributed to a variety of causal factors ranging from constantly rising real returns to tax-exemptions. On the other hand supply factors include REITS’ ability to divert and channel risk-prone investments away from potential collapse into an attractive investment proposition that fetches real returns.