REAL ESTATE – German Real Estate Investment Trusts (REITs) will bring huge benefits for Frankfurt’s financial centre – including creating a new €50bn property market that would put it on par with London and ahead of Paris, a new study claims.
“With a market cap of €50bn, the introduction of REITs could provide a fantastic opportunity for the German financial industry. At this level, Frankfurt’s property sector would be as big as London’s and probably bigger than that of Paris,” said the study, released by German real estate bank Eurohypo.
Beyond the property market, the study said REITs would give a big boost to Germany’s financial sector. “Frankfurt’s stock market could enter a ‘virtuous circle’. A larger market would lead to an increasing number of asset managers and better analyst coverage in the field,” the study said.
This, in turn, would improve the quality of information and liquidity, “leading to better performances, new capital and new companies entering the market, etc”, it added.
Eurohypo’s estimate regarding the market potential of REITs in Germany is similar to those from other industry experts. For example, HSH Nordbank believes that by 2010, REITs could spawn a market of between €30bn and €60bn.
The biggest investors in German REITs would, according to HSH Nordbank, be domestic insurers, who would spend between €20bn and €22bn by 2010. The second-largest group would be institutional investors, with between €10bn and €19bn. Private investors, with likely investments of between €10bn and €16bn, would form the third-largest group.
The German government aims to legalise REITs from the beginning of 2007. Senior officials from the governing Conservative and Social Democratic parties are currently hammering out the details of the relevant legislation.
Separately, DekaBank, Germany’s largest provider of open-ended property funds, said it had recently sold €1.02bn worth of property holdings from its core German fund.
DekaBank is currently restructuring the core fund after it suffered billions euros of outflows during 2004 and 2005. The outflows, mostly from institutional investors like banks, were caused both by a poor performance of the fund and a scandal in 2004 that engulfed the fund’s management.
DekaBank said that further divestments of the fund’s property were planned, adding that, hence, its total volume would decline to between €3bn-€2.5bn from €4.8bn currently.