GERMANY - The Conservatives and the Social Democrats, about to form the next government, have agreed that German-style Real Estate Investment Trusts (REITs) should be introduced - but only under certain conditions.
In their coalition agreement, the two parties said German REITs could be launched once it were certain “that there is adequate taxation of shareholders and that REITs will have a positive impact on the real estate market.”
A timeframe for the introduction of REITs was also not specified in the agreement, which was finalised last week.
Concerns about tax shortfalls among public authorities are the main hindrance to the introduction of REITs in Germany. For example, only half of the normal tax rate would apply to REITs created from property sales.
The authorities also want to ensure that foreign shareholders in REITs face the same tax rate as domestic ones. The demand could conflict with international agreements barring double taxation.
To settle these issues, federal, state and local tax officials have formed a special work group. It is, however, unclear how quickly they will reach agreement.
The previous SPD-Green government had hoped that REITs could be introduced next year, but industry experts now say that it will not be before 2007.
Once REITs are launched, HSH Nordbank, a state-owned Landesbank, estimates that they could spawn a market of between €30bn and €60bn by 2010, with institutional investors being the primary players.
In a new study, HSH Nordbank researchers said the biggest investors in German REITs would be domestic insurers, who would spend between €20bn and €22bn by 2010. The second-largest group would be international institutional investors, who could invest between €10bn and €19bn.
Finally, private investors, with likely investments of between €10bn and €16bn, would form the third-largest group of investors in German REITs, the bank's researchers said.
However, the researchers cautioned that the considerable investment on part of institutions depended on launching a German REIT “which is largely de-regulated.”
“If this is done, German REITs will play a crucial role as a real estate investment in the asset allocation of international investors,” the researchers said.