REAL ESTATE – The German finance ministry is apparently near completing a draft law that would legalise Real Estate Investment Trust (REITs) in Germany from the beginning of 2007.

Germany’s Börsen-Zeitung reported that the ministry is nearly finished after its officials came up with a proposal regarding the taxation of foreign investors in German REITs – one of the biggest barriers to their legalisation.

The newspaper did not elaborate on the proposal. It said, however, that German finance minister Peer Steinbrück would soon meet with MPs from the governing centre-right CDU/CSU and centre-left SPD parties to discuss its draft law.

A spokeswoman for the German finance ministry was not available for further comment.

Parliamentary approval of the draft law legalising German REITs is by no means certain. Although the CDU/CSU staunchly backs the vehicle, SPD MPs have begun expressing serious doubts about it.

Late last month, SPD MPs unveiled a paper that industry experts say was very sceptical of REITs. The paper, entitled ‘Locusts Outside Your Flat?’, analyses the recent acquisitions of residential flats by Anglo-Saxon private equity firms Fortress and Terra Firma and the consequences of legalising REITs.

Nina Hauer, an SPD member of the parliamentary committee dealing with REITs, also told journalists last week: “If you ask me, we’re talking about a product that we really don’t need.”

Still, Germany’s financial industry is holding out hope that German REITs will emerge at the beginning of 2007 – when the UK government is also expected to legalise them.

“What we’ve heard from the government is that the legislation for REITs will be in place by the beginning of 2007”, said Michael Zitzmann, chairman of the German foreign banks’ association who is also head of Citigroup in Germany.

Property experts believe that once German REITs emerge, they could spawn a market of at least €50bn by 2010. Indeed, some bigger German pension funds have indicated an interest in investing in REITs – listed vehicles that buy, sell and manage real estate.