Real Estate Investment
Investment in real estate is a crucial means of investing government funds. There are various suitable equity vehicles which can enable a government to invest in real estate. Investment in real estate may affect the structure of the global financial markets because it will lead to a stiff competition in the market (Baum, 2009, pp 18). Investment of government pension fund of Norway in real estate is supported by some of the Norwegian investment features which are considered as best practices in the international markets. The aim of the government pension fund in Norway is to save and promote an intergenerational movement of resources. In addition, government pension fund also serves as a fiscal strategy tool to limit government spending. This shows that it is good for the Norwegian government to invest in real estate in order to ensure good spending of its funds.
There are various suitable Norwegian liquid real estate investment vehicles in the UK. Norwegian government can look for better investment assets which will enable it to increase its ownership of the real estate investment. Buying in real estate is a popular type of pension fund investment (Baum, 2009, pp 21). It offers good opportunities to make large gains and enables the government to ensure save investment for its pension funds. Norwegian real estate investment can be limited, authorized or unauthorized and thus it is good for the government to choose the best investment vehicle which will enable it to earn more benefits by investing in UK. Moreover, the government can use close-ended and open-ended pension fund investment model in order to invest in real estate. Close-ended funds have fixed number of units and have a fixed lifespan (Delia, 2008). On the other hand, open-ended funds can be issued and cancelled and do not have a fixed lifespan. In this connection, Norway government has to choose the most liquid investment vehicles which will provide quick returns on the real estate investment in the UK.
One of the real estate pension investment vehicles in Norway is the UK limited partnerships. The Norwegian government can use limited partnerships to invest its pension funds in real estate. In this kind of investment, only one of the partners is supposed to become a general partner. This investment vehicle offers management control and the right to share and use joint venture property. In addition, it also allows people to share profits and have joint liabilities for the partnership (Berwin, 2010, pp 25). Investment in the limited partnerships in the UK will be managed by the limited partnership act. Such partnerships will not be legally different entities because the partners will be joined together and share liabilities because any law suits against the company will be filled against each of the partners by their names. Limited partnerships also provide a tax open unregulated investment vehicle which supports a collective pension fund investment for the Norwegian government. Due to their tax transparency, there is no tax within limited partnerships pension fund real estate investment vehicle (Berwin, 2010, pp 25). This allows each of the partners to be taxed alone as if each of them had a direct share of the partnership. They in most cases capture the outline of feeder funds which allow investors to enter the arrangement. Limited investment real estate investment vehicles also have a pre-determined life but this life can be lengthened depending on the agreement of the partners. They can be used in conjunction with other investment vehicles to enhance day to day control of the real estates in government pension fund investment (Eric, 2009, pp63). In this connection, limited partnerships are suitable Norway real estate investment vehicles which will help in pension fund investment in the UK.
The other suitable real estate investment vehicle for Norway pension fund is the unauthorized exempt property Unit trust. This refers to an investment vehicle which is not authorized and is not sold to the general public (Mike, 2007 pp 19). Although this type of pension fund real estate investment is regulated, it is not answerable to the regulations outline by the financial services authority. This kind of investment is ruled by prerequisites of the mechanism which constitutes its scheme. The Norwegian government can use this investment vehicle operated with more supple investment goals and restrictions in order to achieve the investment goals of more sophisticated government investors. The unauthorized exempt property unit trust is always available for assessment by the potential investors before investing in that real estate investment vehicle in order to ensure success of the pension fund investment. Unauthorized unit trust investment vehicles pay tax at the basic rate on the gross profit and are liable to tax on their capital gains (Mike, 2007 pp 23). Unauthorized exempt property unit trust is a crucial real estate investment vehicle for the Norway pension fund because it is ensures that the investors pay tax based on their capital gains.
UK authorized property trust is the other suitable real estate investment vehicle for the Norwegian government pension fund. This investment vehicle allows the Norwegian government to invest its pension fund in property related activities such as in real estate (Nell, et al. 2011, pp 34). It also enables the government to market its funds to the common people. Authorized property trust is free from tax on its income which arises from its property related assets. This helps to do away with the inefficiencies which come as a result of authorized funds for tax exemption. Such inefficiencies may include tax exemption which affects the real estate investment. This investment vehicle is suitable for the Norwegian government pension fund investment in real estate in the UK because it will allow the government to market its funds to the general public.
The limited liability partnership is the other suitable real estate investment vehicle that can be used in investing Norway pension fund. This investment vehicle is used where the partners want to be involved in the management of the real estate. In limited liability partnership, the investors are usually termed as members. Each of these members holds an undivided share of the assets of the real estate investment. When limited liability partnership is used in real estate investment, tax exemption on the company’s income is denied (Nell, et al. 2011, pp 36). In this connection, limited liability partnership can also be used as a vehicle in real estate investment of Norwegian government pension fund in the UK.
A general partnership is the other investment vehicle which can be used in real estate investment of Norwegian government pension fund. General partnership in the Norway may be tax transparent but it may sometimes lose this status if the kind of investment is a common investment scheme (Norman, et al. 2011, pp 167). The investment partners in a general partnership are joined and liable and this allows each of the investors to bind the partnership. The Norway government should ensure that the general partnership investment vehicle is rightly used in real estate investment of government pension fund by making sure that each of the partners is liable and joint in order to ensure that it brings benefits to the government.
The other suitable real estate investment vehicle in Norway is the corporate vehicle which can be used in the investment of government pension fund. Corporate vehicle does not provide for exempt investment returns for the government investors (Norman, et al. 2011, pp 168). The company is liable to a certain percentage of tax from its income gains and also from the contribution of the assets to the company. The transfer of shares in the corporate vehicle attracts tax while the buying of shares may not please the corporate investors if there are certain capital gains in the company. However, the acquisition of the companies may be more pleasant if the asset is held in only one investment vehicle which has only been established to hold the significant asset. In other cases, diligence is undertaken in the real estate investment before acquiring the corporate company. The UK corporate vehicle has many advantages because it has large investor base for its clients (Norman, et al. 2011, pp 168). Apart from having a large investor base for its clients, corporate vehicle enable good returns on the investment and thus it can be said to be liquid. It will help the Norwegian pension fund to earn more profits due to its large number of clients. The Norwegian government can thus make use of corporate vehicle to invest its pension fund in real estate.
Limited partnership is the most suitable real estate investment vehicle for the Norwegian pension fund. This investment vehicle offers management control and the right to use the joint ventures. It also ensures joint liabilities for the venture and offers a tax open unregulated. Due to its tax transparency, limited partnership ensures that there is no tax within the partnership. Lastly, limited partnership can be used together with other investment vehicles and this makes it to be the most suitable vehicle for the investment of Norwegian pension fund n real estate in the UK.
Investment in real estate of the Norwegian government pension fund requires a good choice of investment vehicles which will help in the investment of the funds. There are various factors that have to be considered when choosing the right investment vehicle for their real estate investment. One of the factors to consider is control and decision making of the investment vehicle (Paul, 2008, pp 12). Certain investment vehicles may bar investors controlling the assets possessed by the company. For example, the limited partnership vehicle shows that if the investor wants to make day to day decisions, he/she can choose other vehicles but not the limited partnership. The cost of the investment vehicle can also be put into consideration in order to ensure that the government will be able to fund the investment. The size and number of assets is another factor that has to be considered before choosing the investment vehicle. In this connection, Norwegian government has to make the right choice for the best real estate investment vehicles.
References:
Baum, A. 2009. Commercial Real Estate investment. 2nd Ed. Canada. Taylor & Francis
Berwin, L. 2010. Investing in UK real estate: investment vehicles. 2010, 1-5
Delia, V. 2008. Norway’s oil fund shows the way for wealth funds. IMF Survey Magazine
Eric, T. 2009. Real estate investing. New York. Wiley publishers
Mike, E. 2007. Real estate development: principles and process. New York. Wiley publishers
Nell, D. et al. 2011. Modeling urban commercial property yields: exogenous and endogenous influences. Journal of property research. 28:2, 37-41, London
Norman, E. et al. 2011. The impact of covenant strength on property pricing. Journal of property research. 28:2, 167-188
Paul, M. 2008. Investing in real estate, 4th ED. New York. Wiley publishers
