REAL ESTATE – The Bundesrat, the Upper House of the German parliament, has opposed excluding municipal housing from German REITs, which are to be introduced next year.

The representatives of the German provinces argued that an exclusion of municipal housing from REIT investment will weaken the investment vehicle.

They also stressed that the intended protection of tenants from investors was an illusion "as foreign REITs, private equity funds and all the other domestic and foreign investors can purchase German housing".

The Upper House stressed that REIT investment might be an opportunity for local authorities to make money out of properties they own. "If they are prohibited from selling to REITs they will have to turn to another investor which might be one of the feared ‘locusts’", the Upper House said in a statement.

As the bill has not yet been through its first reading, the Bundesrat’s opposition has no immediate effect. Next year the bill will have to be approved both by the Lower House and the Upper House to become law.

But while the position of the Bundesrat might mean that G-REITs will go through yet another amendment before coming into effect, the representatives indicated that they might approve of the bill even if housing stays excluded.

The exclusion of municipal housing from German REITs had been introduced a few weeks ago to ensure the consent of the Lower House to the bill. Some MPs feared that REIT investment in municipal housing might lead to rent increases for poor people and dislodging of tenants.

Members of the Upper House also urged the government to check whether the suggested legislation on REITs was compliant with EU regulations. The delegates criticised the 10% cap on investment in one company, the exclusive tax exemption for German REITs and the exclusive use of exit-tax for German REITs and open-ended real estate funds.