The British Property Federation has predicted that changes to the rules governing property investment vehicles will spark an upsurge in interest in residential trusts.

Gordon Brown, the Chancellor of the Exchequer, said in last week's Budget that he would include legislation in this year's Finance Bill to create real estate investment trusts (REITs).

A REIT is a property owning trust that private investors can buy shares in. It provides individual investors with a more liquid alternative to buying property outright.

Under the amended scheme these trusts will be able to retain 90% of profit as opposed to the 95% figure in an earlier consultation document.

So far REITS have sparked little interest among residential developers and landlords.

But Ian Fletcher, British Property Federation residential director, said that the rule changes would make it easier to set up a residential REIT.

Rule changes will make it easier to set up residential REIT

Ian Fletcher, director of the BPF

In particular, he said, the higher costs involved in managing homes as opposed to commercial property meant that the ability to retain a bigger share of profit would make residential trusts more attractive.

But Fletcher said that the requirement that REITs should be listed on the stock exchange threatened to act as a brake on the development of residential trusts.

The Barker housing supply review recommended the introduction of REITs as a mechanism for increasing investment in residential property.