Lack of knowledge of global property among advisers is hindering the growth of Reits in the UK marketplace
Intermediaries' lack of understanding of global property markets could be preventing Reits from realising their full potential.
Ian Hally, investment director of real estate securities at Scottish Widows Investment Partnership, explained Reits were introduced to improve access to real estate markets for investors unwilling to take the often costly and slow traditional route.
As well as their lower transaction costs, Reits can bring investors into contact with specialist skilled managers, according to Hally.
He believes there is evidence that in countries such as Australia, where Reits have recently been established, they have become an asset class in their own right, used to complement direct real estate investment.
He pointed out that property securities tend to be strong portfolio drivers, and they are free from the tax distortion found in other methods of exposure to property.
"These investors tend to be sticky - they are in it for the long term, holding property for strategic reasons," he said.
Ernst & Young partner Craig Hughes feels Reits have strong potential because they open up the property market to a range of investors.
He said: "People have different capacities to buy property and we cannot all afford to spend £20m on a few houses for our portfolio. Reits bring something new to the table, allowing retail investors to share in property and to gain access to manager expertise."
The problem is the dearth of detailed knowledge of the subject among less-specialised advisers, said Hughes, adding that a process of re-education is needed to give advisers the confidence to recommend Reits to their clients.
Advisory body Reita aims to bridge this gap. Programme co-ordinator Dave Butler explained that changing attitudes and building better relationships between providers and distributors is key to overcoming the reluctance to advise on Reits.
He said: "There is confusion among intermediaries about what they can and cannot advise on. They have been used to recommending funds based on past performance and tend not to recommend Reits as they do not get commission for it."
Butler sees Australia as a success story in this respect and thinks the UK could follow suit.
"We need more flexibility to provide opportunities for smaller trusts to come to market but Reits are only three months old so we still have a long way to go," he said.
As for the future of Reits in the UK, Butler predicted changes in terms of both scale and specialisation.
He said companies will target more niche areas, such as PHP, which deals in primary healthcare real estate, and Liberty International, a retail property business.
Butler expects M&A activity to reduce the number of vehicles on the market and force them to compete on a global scale, which he feels will be good news for investors.