German REIT Market Hangs In Balance As Lawmakers Wrestle Tax Concerns

by Ulrika Lomas, Tax-News.com, Brussels

25 April 2005

The German government's chances of introducing real estate investment trusts by next year as a way of injecting life into the property market and increasing the tax take continue to hang in the balance as lawmakers fret over the existence of new tax loopholes.

The ruling Social Democrats had hoped to have REITS legislation on the statute book by January 2006, but ongoing concerns from some quarters over the taxation of foreign investors, which many fear will lead to a loss of revenue rather than a revenue gain, have now led some party insiders to believe that the government will be forced to postpone the legislation indefinitely.

Speaking last week, German Deputy Finance Minister Karl Diller admitted that the proposals needed some fine tuning and that the government had something of a mountain to climb to win over the sceptics.

However, it would appear that the German government has too much invested in the project to shelve it indefinitely and is keen to foster more investment in the nation's real estate, especially since the IMF predicts that the economy will grow by a sluggish 0.8% this year. Diller himself expressed confidence that the anomalies can be ironed out.

In a recent speech, Eichel stated that while he is behind the idea of creating a REIT market, he is also keen to ensure that the structure of the vehicles should not open up any new tax loopholes.

However, by the same token, he argued that this should not jeopardise the launch of a REIT market next year.

"If we decide to go ahead, then the goal is to do it in 2006," he stated.

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