Real Estate Investment Trusts Research Paper Example | Topics and Well Written Essays - 7500 words

Real Estate Investment Trusts - Research Paper Example 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--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 the 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 the 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 that of 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.Although a number of investment vehicles exist in the non-property sector of the economy, there is very little strategic freedom for the average REIT to channel funds into diverse investments thus expecting a real but constantly growing return (Acharya and Dimson, 2007, p.176). While the company is a normal corporate entity with a listing on a stock exchange there is something unusual about its strategic focus , viz. the way and manner in which it conducts itself in distributing profits. Potential investors would have the assurance of getting some profits but nevertheless how much profit is determined by