Finance: New type of fund 'lets charities invest in property'

Charities are being urged to consider a new form of indirect property investment due to be available from 2007.

The Chancellor, Gordon Brown, used last month's Budget to approve the introduction of real estate investment trusts, or Reits.

They are pooled funds that enable smaller investors to buy shares and gain returns from property. They do not pay corporation tax and have to distribute 90 per cent of their profits to shareholders.

Supermarkets such as Tesco and Marks & Spencer have hinted they may float their store portfolio as Reits.

John Gellatly, head of indirect property investment and strategy at Merrill Lynch, said Reits removed many of the disadvantages that stopped charities investing in property directly.

"Property is expensive and most charities are small," he said. "They might be able to buy one building, but they have a lot of specific risk.

With Reits you get unitised access - you can put £5,000 in and you can get relatively high income yields. Reits pass the rent from the building through a thin management team through to the shareholder without any intervening tax."

He added that Reits were worth £660bn, and overseas investments produced better returns than in the UK.

Jakes Ferguson, joint fund manager of the Sarasin global property funds, said Reits would help charities achieve good diversification in their portfolios. "They are proven to increase returns and reduce risk," he said. "They are a pretty compelling product."

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