German Lawmakers Do The REIT Thing

by Ulrika Lomas, Tax-News.com, Brussels

05 April 2007

The introduction in Germany of a real estate investment trust (REIT) regime will improve the liquidity and transparency of the property market and bring a more entrepreneurial approach to property ownership, according to a global real estate investment advisor.

Patrick Sumner, Head of Property Equities at Henderson Global Investors which manages over EUR4 billion in assets, says that while Germany has the largest property stock in Europe it is under-represented in the listed arena and the introduction of the 'G-REIT' should encourage the creation of a significant listed German property sector.

"We welcome the introduction of REITs in Germany," he said. "REIT legislation already covers around 60% of the European listed property sector and the inclusion of Germany will broaden the sector still further."

Sumner is of the view that the G-REIT regime will bring about a number of positive changes: it will speed the transfer of property from German corporate ownership, helping the restructuring of German industry; it will open the way for institutional investors to restructure their portfolios and it will provide an exit for the Open-Ended and Closed-Ended funds. He also observed that it will improve liquidity and transparency in the nation's property market and have knock on benefits for the wider German economy.

"It is taking place at an interesting time in the property cycle, with consumers growing in confidence as employment starts to grow again and key office markets such as Hamburg and Munich showing early signs of recovery," Sumner noted.

He continued:

"The initial rules seem unnecessarily restrictive but our experience of the French SIIC regime and the UK's newly introduced REIT rules is that once legislators get comfortable with REITs and the tax benefits which they bring – both in terms of exit taxes and ongoing revenues from withholding taxes – they seem to be happy to work with the property industry to liberalise the rules.

"The exclusion of tenanted residential property is a case in point: the transfer of residential assets to foreigners is politically sensitive yet is almost certain to continue apace while inclusion of residential in the G-REIT would help to redirect the flow of assets into a local investment medium which would open the way for the German public to participate in this asset class along side international investors.

"We are already seeing an increasing number of German property investment opportunities and we are looking forward to the emergence of a major new market sector."

REITs are proving popular with both governments and investors all over the globe. Countries with REIT legislation in place include the USA, the UK, Hong Kong, Malaysia, Singapore, Japan, Australia, and the Netherlands. Usually, a REIT is a fund, publicly listed or not, which holds real estate assets, and is tax-transparent (pass-through) as long as it distributes a percentage of its gains and profits to its shareholders, typically about 90%.

Recommended