Effect on interest rates due to the investment in REITs Essay

Effect on interest rates due to the investment in REITs - Essay Example In the year 2007, the real estate industry in UK is about to give the chance to investors to invest in real estate investment trusts. These are public listed vehicles that can satisfy the record demand experienced for investment in real estate. This can increase the capital acquiring capacity of the real estate firms and it can decrease its dependence on the bank credit. This in turn may decrease the interest rates or at least remain at what they at the end of last quarter of 2006. These investments not only impact the interest rates but also, these provide the required liquidity to an asset class that is considered as inflexible. The historically inflexible asset turning into a flexible asset and the provision of the liquidity for it can decrease the demand for the bank loans. One of the factors that impact the interest rates is the liquidity of the assets. The increased liquidity of the assets of a company or the people can decrease the demand for the bank credit up to some extent. This will certainly show a negative effect on interest rates and is capable of decreasing them or can stop them from increasing. Generally the international transactions involve the risk regarding exchange rate. The interest rates also effect the forwards yet times.A contract is signed and for completion within 3 months. Generally any one thinks about the exchange rate of GBP with the currency of that country. If the interest rates are considered and if the UK rates are higher, there will be a higher cost for the forward contract. In this case one can sign forward contract with a firm in the country that is having higher interest than in UK. This will reduce the burden on the buyer if there is any delay in execution of contract. Effect of the investments These investments will result in limited partnerships that have institutions as investors. There is a chance of emergence of onshore and offshore property unit trusts that contain institutional high net worth investors. The increase of