Aug. 2, 2022
Taken from an Estates Gazette article, published on the 2nd August 2022, here: | IPSX: democratising real estate investment? (egi.co.uk)
Property values in the UK - and London especially - have been rising steadily for years and have recently reached record levels, allowing investors to reap the rewards. But investing in commercial property in particular has typically required significant funds and investment from the outset, potentially preventing some investors from entering the market.
However, the International Property Securities Exchange is on track to transform real estate investment. IPSX is the world's first regulated stock exchange for property, through which investors can buy 'shares' in buildings. Currently wholly dedicated to commercial real estate assets, IPSX facilitates direct investment in commercial property via a public market.
For owners and investors, IPSX provides greater flexibility and liquidity. Rather than being forced to invest in listed property companies with multiple assets, it is now possible to invest in a specific asset or assets, giving more freedom to both investor and the owner.
Having received Financial Conduct Authority approval in 2019, IPSX became the first recognised investment exchange market to open in the UK in almost 10 years.
For investors considering venturing into commercial real estate, what are the benefits of investing in property via IPSX, and what considerations should potential investors keep in mind?
IPSX Prime and IPSX Wholesale
IPSX currently operates two markets: IPSX Prime and IPSX Wholesale.
IPSX Prime is typically the principal market for an initial public offering of shares in a company which owns commercial property assets. It can offer an alternative source of capital in a regulated market.
On the flip side, IPSX Wholesales offers a different function. Focused on providing real estate owners with an onshore markets, so that a variety of corporate structures can be accommodated, IPSX Wholesale allows real estate owners who are looking to develop or repurpose their assets to access funding. The condition of the funding is that, within five years, the asset must become stabilised and must generate income.
For both IPSX Prime and IPSX Wholesale, assets must be valued at a minimum of £50m.
Opportunities and Benefits - Tax
IPSX companies are expected to qualify as real estate investment trusts for asset owners, which enables them to benefit from the tax advantages of holding REIT status. By mimicking direct investment in UK property, taxes that are part and parcel of the process of investing in corporate structures can be avoided with REITS. Additionally, landlords listing their assets as REITs benefit from improved flexibility - raising capital on specific assets. IPSX opens up new avenues for strategy and an alternative model .
The REIT structure for IPSX assets means that shares are exempt from corporation tax on gains on any sales of investment properties as well as shares in property investment companies, and can also attract more international capital: there are significant investment pools which are designated for investment in REITs. Furthermore, when compared with stamp duty land tax on a property purchase, REIT status ensures both lower transaction costs and less stamp duty on the purchase of shares.
While there are numerous factors to consider before deciding whether a company's best fit is REIT status, in particular the requirement for a REIT to distribute 90% (or more) of it's tax-exempt income profits, the opportunities and the tax benefits presented by IPSX for both investors and owners are clear.
The launch of IPSX was one for the history books. It is only the sixth recognised investment exchange to be listed on the British financial system and has heralded a new step forward in the world of real estate investment.
Traditional real estate investment can be a lengthy process - as anyone who has bought property will know. IPSX has clear benefits and potential, and it's certainly something to watch with interest. By opening up such a public market, IPSX unlocks exciting opportunities for everyone - not just deep-pocketed professional investors.
Opening up the market
The IPSX Prime market allows retail, individual or non-professional investors to purchase shares in single market assets, thus allowing these investors to access the commercial real estate market when they previously may not have been able to. However, IPSX Wholesale is specifically restricted to professional investors, ranging from domestic institutions to high-net-worth individuals and international funds.
For asset owners and developers, an IPSX listing creates an immediate financing option, while allowing them to maintain control of the asset. Similarly, IPSX allows industrial owner-occupiers to list a portion of their assets, rather than having to go down the sale-and-leaseback route, enabling them to avoid taking on long-term debt and allowing them to maintain exposure to future appreciation in property value.
With the prospect of a recession in the UK, many investors may be looking to safeguard returns as far as possible. Traditionally, real estate has afforded better, more reliable returns. While difficult market conditions have taken their toll, the opportunities IPSX poses and doors it opens up are exciting.