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The government has now issued its consultation paper on property investment funds, also known as PIFs, Promoting a More Flexible Investment in Property. There are strong indications that the government is keen to encourage PIFs for both social housing and the private rented sector.

They could increase corporate and institutional investment, raising standards in the rented sectors and providing an alternative to the successful but highly geared buy-to-let market. But what are they – and will they work?

PIFs follow the American-style real estate investment trust model and, although the final form awaits legislation, a number of key factors are emerging:

• a PIF will be an investment trust vehicle listed on the stock exchange, requiring a minimum number of investors
  
• both institutional and individual investors could purchase shares, and individuals could hold shares through an ISA
  
• PIFs would avoid double taxation so that there would be no corporation tax on rental income nor capital gains tax on property sales provided that 90% of net rental income and a high percentage of capital gains were distributed
  
• PIFs would be allowed to borrow but there will probably be a limit on gearing, maybe 50%
  
• rented housing can be incorporated within a PIF but, while there may be some restrictions on development activity within the vehicle, the government is keen to ensure that high-quality housing is incorporated and managed efficiently
  
• the residential property could be managed through outsourcing, although internal management would also be permitted
  
• existing residential property could be transferred into or purchased by a PIF
  
• existing entities owning rented property could convert themselves into a PIF but there is likely to be a tax or other charge for so doing.

PIFs will be of interest to both registered social landlords and councils. It is clear from the consultation paper that a number of options will be available, including the chance for housing associations to become involved as developers in connection with converting and refurbishing existing property, developing rented homes and being involved as property managers.

PIFs could be designed to attract institutional finance and ensure local community interests are taken into account

On the face of it, there is no reason why social housing could not be incorporated within a PIF, particularly if PIFs were entitled to receive social housing grant under the revised arrangements incorporated within the Housing Bill that is being considered by parliament at the moment.

Indeed, such vehicles could be used to take transfer of local authority housing stock requiring significant investment, and could be transferred on the basis of tenanted market value as is conventionally the case on large scale voluntary transfer.