Templeton targets UK land

LONDON (Reuters) - U.S. fund manager Franklin Templeton sees better value from buying land in Britain rather than existing properties, as rents in UK could tumble for the next five years, its head of property told Reuters.

It also wants to invest in China real estate investment trusts (REITs), but does not expect a listing for at least another year due to delays by regulators, Jack Foster, head of Franklin Templeton Real Estate Advisors (FTREA), said.

FTREA, which has $4 billion (2.4 billion pounds) in assets under management, now has about $1 billion available to invest and last month took a stake in an opportunity fund eyeing UK land, its first investment since May 2008, New York-based Foster said.

"The view is that over the next three to five years, any existing building that you buy will have declining rents, so we're not sure if significant returns can be made there," Foster said in an interview.

Opportunistic investors are raising billions of euros in anticipation of deeply discounted bank property sales, but many European banks have said they will give struggling customers leeway to work out the loans rather than foreclose on assets.

"Banks are not foreclosing and selling distressed portfolios, but are willing to let land assets go because banks can't do anything with them ... land values are low with no prospects of rising and produce no income," Foster said.

"You basically want to get your land for free now ... there's not a lot of upside and you're not going to build on it any time soon," he said.

He declined to give details about FTREA's latest UK investment, but said FTREA prefers to put its money with funds of between $500 million to $750 million in size, and tends to invest up to $150 million each time.

CHINA REIT DELAYED

FTREA is most bullish about real estate opportunities in Asia, as the region did not see the over-leveraging that is plaguing many Western countries, and so was more likely to bounce back sooner, Foster said.

"The demographics of growing populations speaks strongly for Asia opportunities ... even in Japan where the population is ageing, there's not a lot of overbuilding and the economy will do well in parallel with the rest of the region," Foster said.

He is particularly keen to buy stakes in the initial public offerings of China REITs, to gain exposure to fast-growing cities such as Wuhan and Chongqing, but does not expect one to list in the country for another 12 months.

REITs are property investment vehicles that typically distribute more than 90 percent of income to investors in return for corporate tax breaks, and have gained popularity in Asian markets such as Singapore and Hong Kong in recent years.

The Chinese government had planned to launch REITs this year, to provide a badly needed source of funds for developers struggling to raise money amid stagnant sales, tight credit and a frozen IPO market.

Easing credit conditions in China means there is now less urgency for REITs to be pushed through, as regulators are still mulling over issues such as whether to allow investments from foreign institutions such as FTREA, Foster said.

"We don't think REITs in China are going to surface as soon as people think ... we're also hearing the government is not sure it wants to offer the tax breaks that most REITs have around the globe," he added.

FTREA's Global REIT Fund, launched in April 2006, returned 19.57 percent in the three months to end-May 2009, underperforming the 43 percent gain in the FTSE EPRA/NAREIT index of global real estate shares .FTUNGL.

(Editing by Andrew Macdonald)

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