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Finance (No. 2) Bill

I wish to address my remarks to amendments Nos. 64 to 68. The substantive amendment is amendment No. 65; the others are consequential, renumbering subsections in clause 106. The Minister and others will know that I and my party are very supportive of the concept of real estate investment trusts. Like many, we believe that they offer a route into property investment for the vast majority of people, who do not have the means to purchase a second property outright, or for those who do have the means but who simply wish to avoid managing such properties themselves. We also believe that if REITs are local and highly focused residential trusts, they have the opportunity either to complement the existing local authority sector or housing association and private residential rented sector, or to provide additional rented properties in areas where there is little provision, or none at all. However, the legislation as it stands will force all REITs to be listed on the stock exchange. We believe that that requirement alone might prevent the creation of the smaller, local, highly focused residential trusts that we would like to be created, along with the inevitable larger commercial ones. As we know, the minimum entry level for a stock exchange listing is £750,000, plus another £750,000 for fundraising, plus 2 to 5 per cent. in commission, and advisory costs of some £250,000. Fundraising on the stock exchange can be for any amount. We also know that the typical value of a stock exchange-listed company is £100 million upwards. If one combines those costs with the other rules—that 75 per cent. of a REIT’s commercial activity must come from rentals, and that 90 per cent. of the rental income must be returned in dividends to investors—there is a very real danger, to which the hon. Member for Rayleigh (Mr. Francois) alluded, that REITs will focus solely on high-end commercial and retail properties that already offer a guaranteed high rental income. It is also likely that, to cover the listing costs and to meet all the other rules and obligations, such trusts will purchase property rather than seek to develop it. Our view is that to encourage smaller, more focused residential trusts to deliver rented housing, the entry bar should be far lower than the stock exchange listing requirement in current legislation. For example, the minimum entry cost for introduction to the alternative investment market is about £300,000. Fundraising accounts for another £300,000, and there are similar commission levels of 2 to 5 per cent.; however, the ongoing advisory costs—some £50,000—are far less than the £250,000 figure. In AIM, companies tend to be in the £10 million to £150 million range, with fundraising costs in the region of £2 million £20 million—the kind of figure that a small, locally focused residential trust might seek to raise. Further down the range is the off-exchange market, with a minimum entry figure of £30,000, fundraising costs of about £100,000 and similar commission levels, but with ongoing advisory costs of some £10,000. Ofex caters for businesses up to the £20 million mark—not a tiny sum—whose fundraising costs are in the £300,000 to £4 million range. Of course, there is also the opportunity for any business or trust to be financed privately. So, given the other conditions applying to REITs—not least the residency qualification—there seems little logic in forcing a REIT to be quoted on the official list; indeed, in the light of the associated costs and the typical size of businesses on the list, there is almost a disincentive for local residential trusts to be created. Our amendments would eliminate that requirement from the Bill by deleting subsection (5) from clause 106, thereby removing the condition that a trust company’s ordinary shares be listed on the stock exchange. The only argument previously posited in favour of full listing is that it would perhaps give confidence to investors and to those seeking to rent a property from such a trust. However, a given individual or business will take the decision to invest or rent after applying the correct degree of scrutiny and due diligence. Although a full listing indicates a large company with deep pockets, a small, privately funded trust—or one whose shares are traded in AIM or Ofex—could prove to have better local knowledge, equally experienced management and excellent internal management systems. In short, there should be no assumption that a stock exchange listed company is always a better option than one that is not listed. The key point is that although I welcome the creation of the REIT regime, the Government should not limit the creation of highly focused local residential trusts through the mechanism of a stock exchange entry and its associated fundraising costs. We have great hopes that REITs will complement the existing social and for-profit rented sector, but that opportunity would be enhanced by a more liberal approach to the regime’s operation from the outset. I suspect that the Government have some sympathy with that argument. We want a commitment from the Government that they will move as quickly as possible to liberalise the REITs regime, in order to ensure that the hoped-for benefits in the residential sector are brought to fruition, and that REITs do not simply become players in the high-end commercial property market. I hope that, when the Minister sums up, he can guarantee, or at least hint at, the fairly speedy liberalisation of the market. Should that not be forthcoming, we will—should you allow us, Madam Deputy Speaker—press one of our amendments to a vote.