The report is just the latest evidence of the broad welcome from the industry to the UK government's new stance. "Their approach is welcome," says Phil Nicklin, partner at Deloitte. "They seem to be producing a very flexible vehicle."

Even the thought of further consultation on key unresolved issues is seen as positive. Liz Peace, chief executive of the British Property Federation says, "They haven't come down firmly on anything we don't like, and the difficult areas have been left for further discussion."

But some of these unresolved issues are "make-or-break" hurdles. Graham Chase, vice-president of the RICS, suggests these include how companies will be taxed when they convert, how much the REITs can reinvest, how much they can borrow, whether REITs will have to be listed or not. But he adds: "The main thing is that the government has got the principles right. These are the details."

For overseas investors, the key unresolved issue is the tax treatment of non-EU investors. "The UK Treasury appears determined to tax overseas investors on distributions from UK-REITs," observes Morgan Stanley analyst Martin Allen. "It has yet to find a way to do so without either compromising the domestic tax treatment of REITs or international tax treaty obligations. We expect a UK REIT will depend on finding a solution."

With further consultation lined up and legislation expected in the 2006 Finance Bill, the government is taking its time. But this is not necessarily a bad thing. "They are determined to get it right," says Fraser Hughes of the European Public Real Estate Association. "Unlike Germany, REIT legislation here is not being driven by a sense of urgency. In Germany, the finance ministry is expected to legislate early next year in an attempt to resolve a growing crisis in the open-ended funds."

Chase points out that it has taken the UK property industry 20 years to persuade the government of the principles in favor of REITs. But "the experience and knowledge gained from the lobbying means that the property industry can address some of the complicated details relatively quickly. It also means that we have been able to learn from the mistakes and successes of other countries." The introduction of REITs in Germany and the UK is seen as crucial steps in the creation of a European market in REITs. Belgium, Netherlands and France already have their own versions.

EPRA estimates that within five years, REITs in these five countries will cover 90% of the market capitalization of property companies within the EU. In GDP terms, France, Germany and the UK are Europe's biggest players. So once Germany and the UK legislate for REITs, Spain and Italy will follow suit quickly. "They will be under pressure to follow suit from the industry at large," notes Hughes. "It is important that the major economies in Europe establish a tax-transparent, level playing field, to help attract capital into the sector. The broader adoption of the REIT model will offer North American and Asia/Pacific investors access to a market structure they are very familiar with."

So what about a European-wide REIT? Hughes estimates this is still some way off. "We could be looking 10 years down the line. The first step is getting REITs at a local level throughout Europe. The move toward European REITs is a whole lot more complex because there are a host of issues to resolve like tax and legal differences. The first step would be a UK-France structure and then a UK-France-Netherlands structure and so on."

The biggest stumbling block to European REITs is likely to be political. Any talk of tax harmonization within the EU tends to spark much controversy within major member states. The concern is that tax harmonization would further dilute a country's sovereignty.

But the market may force the issue. Europe's biggest-ever property takeover play has been structured around different tax regimes. Metrovacesa's euro 5.5-billion ($7.4-billion) bid for Gecina last week was prompted by the desire to take advantage of the French firm's tax-free status. Metrovacesa is hoping to use tax-free dividend income it will generate from Gecina to pay interest on debt raised in Spain and so lower its financing costs.