Chancellor Gordon Brown, the minister responsible for government finances, announced his intention to introduce REITs in the Budget, after seeing their success in countries such the US, Australia and France in boosting investment in property. Brown is particularly keen to see REITs operate in the housing market where he wants to encourage greater institutional investment to boost build rates.

REITs would also enable property companies to convert to investment trust status, bringing considerable tax advantages and increasing liquidity in the property market. The move is likely to accelerate the contraction of the quoted property sector and Hammerson, which has already taken advantage of French-styled REITs for some of its continental portfolio, has already announced it is keen to do likewise in the UK.

While the industry is backing governments to introduce REITs it has expressed concern that regulation, intended to protect retail investors, may be too restrictive.

"To ensure REITs become the success that we believe they could be, they need to have the maximum operational freedom possible, in terms of their corporate and management structure, gearing levels and development activity. REITs present a unique opportunity for retail investors and savings vehicles to invest in UK real estate through diversified investment vehicles in a tax-efficient manner," says Liz Peace, chief executive of the BPF. "However, it would be hugely regrettable if, after all these years of trying, we ended up with a regulatory regime that made it unattractive for REITs to operate."

But the currently proposal has also been criticized by a leisure lobby within the property industry because it excludes hotels. The government believes that income from the property and from the business cannot be kept as separate streams. A new report out by CMS Cameron McKenna, Jones Lang LaSalle Hotels and Hotel Analyst shows how this is possible. The REIT could invest directly in the property while a wholly owned subsidiary of the REIT owns the hotel business.

"This report shows that not only is it possible to separate the hotel property asset from the business, but that excluding hotels from REITs could damage the industry and all those who rely on it. Hotels play an important part in the UK economy, directly by contributing jobs and tax take, and indirectly by supporting tourism and travel. Excluding hotels from REITs would adversely impact these benefits," says Charles Romney, Hotels partner at CMS Cameron McKenna.