The committee's response to a Treasury consultation paper sought to allay some of the fears about delays. "I think there's every chance of meeting the 2006 timetable we envisage with REITs," said Liz Peace, chief executive of the British Property Federation at a press briefing. The response also confirmed that the main concern of the British government is losing tax revenue from REITs, particularly to overseas investors. But the paper was less sanguine about Treasury proposals to levy a 22% levy but with tax credits offered to UK investors. The committee said this would effectively kill the model as an attractive investment for foreign capital flows.

Instead, the industry is pushing hard for the UK to adopt the US international standard for REITs where no tax is levied at the corporate or vehicle level, only on the dividend income distributed according to the tax status of the investor. A third compromise solution could be an internal trust model, which bears some similarity to the Australian Listed Property Trust example of separate fund management and operational components of the company stapled together. That would satisfy the government's tax concerns but is unlikely to be as attractive to investors.

"A REIT has got to smell like a REIT and taste like a REIT," Rosalind Rowe, director for tax services at PriceWaterhouseCoopers told the briefing. "Why go through a more difficult way and not the easiest and most transparent route?"

John Gellatly, head of indirect property investment and strategy at Merrill Lynch Investment Managers, warned that if the government did not get the tax model right, the flow of domestic UK property investment offshore would also accelerate. "The last eight property IPOs have all been offshore," he stated. "There's now £3 billion in listed property trusts in Guernsey, which are REITs in all but name."

Peace warned that Britain could not afford to wait on the introduction of REITs. Since France adopted the US model, it has seen the market capitalization of its 10 established quoted property companies double within 18 months. Germany is also planning REITs in 2006, although there are signs the legislative process there is also being slowed over the question of tax leakage to foreign investors.