REAL ESTATE - The Finnish Pension Alliance (TELA) has criticised government proposals on real estate investment for failing to remove tax obstacles that will discourage pension funds and other investors from investing in REIT-style structures.

At issue is the government’s refusal to lift double-taxation provisions. The new rules will allow for the creation of mutual real estate funds. However, these will lack the liquidity of listed companies and investors will still face tax strictures that those in other REIT markets do not.

“Finland believes that all companies should be taxed the same, that there should be no special tax rule. It seems determined to hold onto this principle,” said TELA international and legal affairs director Matti Leppälä. “Without a firm political decision, the principle of tax will not be changed.”

Leppälä described the changes, which will allow mutual funds to invest in REIT-like structures, as “very positive”, but pointed out that, unlike REIT structures in other countries, it will not open indirect real estate investment to international and retail investors.

“One of the central features of REITs is that they make it easier for a wide range of investors. That isn’t the case here. If there is double taxation, it doesn’t make sense for pension funds to invest in them.”

Yet he added that, overall, TELA saw the new rules as an indication of progress.

“Pessimistic? I’m realistic, rather. We’ve tried and we’ve lobbied. We’re not unhappy about changes – on the contrary.”

For the moment, TELA is pinning its hopes on getting the tax issue on the next government’s agenda. The organisation is planning a mammoth lobbying effort ahead of parliamentary elections in 2007.

“The government programme needs progress towards a REITs model and we’re looking for commitment from the next government to make the change,” said Leppälä.