UK – Industry analysts have largely welcomed chancellor George Osborne's apparent decision to allow UK real estate investment trusts (REITs) to invest in other REITs.

Osborne suggested earlier this week that he would change the current rules to remove penalties on one REIT investing in another, but more details are expected in the budget statement next week.

Marion Cane, director in Ernst & Young's real estate tax team, welcomed the proposed move, which she said would allow REITs to engage in tax-efficient joint ventures with pension and sovereign wealth funds.

The result would be greater funding for large projects with third-party equity.

Deloitte also approved the anticipated change, which will make dividends on one REIT investing in another tax-exempt.

In a statement, real estate partner Phil Nicklin said it would allow REITs to run their businesses more flexibly and facilitate further investment in UK property.

"The change may spawn a number of new substantial REITs and could also open up opportunities for shareholders to invest directly into a REIT's specialist portfolios or assets in a tax-efficient way," he said.

The chancellor also revealed plans to reform the UK's "discredited" Private Finance Initiative (PFI) regime, promising "a revolution in the sources of finance for upgrading Britain's infrastructure".

Osborne said in his speech yesterday: "Since we can all see now that the public sector was sharing the risk, we will now ensure we also share in the reward."

However, DTZ director Andrew Smith, said: "PFI is already a relatively expensive means of funding – when the government can raise funds at 2%, then it won't be sensible to use hard-earned tax revenues to fund PFIs at upwards of 5%."

He added: "There is scope for significant savings from restructuring existing PFIs, which could be pumped back in to kick start more activity."

Few expressed surprise over the chancellor's decision to drop a proposal to create social housing REITs.

Osborne suggested consultation had shown the idea to be "neither viable nor necessary".

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