The Reit way to invest in property, but will new tax rules swell the bubble?

Syndicate members needed to come up with large amounts of money and be prepared for significant risks related to owning just a few properties. Most retail investors were kept out either because they lacked the funds or because they could not afford to take the risk. Mr Dampier argues that while Reits may make it cheaper and easier to invest in property such as shops, offices and factories, they will be paying a full price. A boom could easily turn to bust if rocketing rents are undermined by a stalling economy.

Liquidity

Investors might also suffer from a bubble that could stem from an influx of funds chasing too few good properties, for example, if collective funds such as investment trusts desperately put their money into unlucrative office blocks and shopping centres in the poorer parts of town. The government argues that Reits will make property investment more transparent. Ms Foxley agrees that Reits will make property just like any other asset class. Investors will buy a share in a trust rather than a share in a property. This will be much easier to buy and sell, increasing liquidity. The risks in any investment should also be more transparent.

For years ministers were under pressure to create Reits and fall into line with property trust industries in other countries and the Channel Islands.

Today they are under pressure from investors to go further and sanction unlisted Reits, which could act much like private companies, staying small with few regulatory burdens. So far the Treasury has said no, nervous that without the regulations of the stock market, a scandal is likely to be lurking around the corner.

Lord Oakeshott, a life peer and founder of the investment house Olim, said the rush to convert to Reits is likely to be widespread after the government "caved in" and demanded only 2% of assets as a conversion fee.

The strong rise in commercial property values over the last three years has resulted, he believes, from a dearth of sellers. Lord Oakeshott argues that property companies are reluctant to sell at the moment - when any property sale attracts a tax charge - when they could wait until next year when the tax charge disappears. "So there could be much more supply around next year and a drop in values," he said.

The new trusts

What is a real estate investment trust?

A Reit must derive at least 75% of its income from renting out commercial and residential property. No single property can represent more than 40% of the total assets.

What's the main advantage?

Paying less tax. Unlike a listed property company, a Reit avoids paying corporation tax. So it enjoys tax free rental income on the properties it owns. It can also sell properties without paying capital gains tax.

Do investors pay tax?

Yes, the trust must apply the basic rate of tax at 22% (or 40% for higher-rate taxpayers). Investors gain because the firm does not pay tax.

Can existing property companies become a Reit?

Yes. They must pay a fee equal to 2% of assets, change their structure to meet trust laws and list on the stock market.

Why is the government letting these firms convert if they pay less tax?

International competition: Reits are popular in Europe and the US. More importantly, a vibrant market has grown in the Channel Islands, offering wealthier individuals a route to cutting tax on their property investments.

Is that the only reason?

No. Until now investors bought a slice of an individual property, which was costly and risky, restricting property as an asset class to the wealthy. Reits allow investors to treat property as they would shares in a unit trust, making them a mainstream investment product. Investors in Reits buy a slice of the trust and not the underlying assets, allowing them to invest small sums and spread the risk over hundreds of properties.