EUROPE - INREV will be taking on the function of lobbying Brussels on behalf of the non-listed real estate industry.

Matthias Thomas, who took over as chief executive in May from Andrea Carpenter, told IP Real Estate: "We must ensure the industry's voice is heard in Brussels - the regulators need educating."

Thomas stressed the emphasis: "I avoid the word 'lobbying' - it is more a case of public affairs. The issue is how to become involved in Brussels in the early stages of the legislative process - of being asked to participate in expert hearings so the industry can make its voice heard soon enough for it to have an impact.

"Our objective is not to argue non-listed real estate is superior to listed or direct real estate, but to make it clear it is an asset class in its own right, with its own risk-return attributes, and ensure it is treated in a sensible and fair way.

"We need to educate the regulators that non-listed real estate is both transparent and efficient."

One piece of legislation INREV believes presents a very clear case for INREV to take on a lobbying function is Solvency II - the fundamental review of the capital adequacy regime for the European insurance industry that aims to establish a revised set of EU-wide capital requirements and risk management standards to replace the current Solvency requirements. 

Thomas said: "There is no reason to argue against having a risk-based capital approach - in theory, this is a good method. The question is whether the method chosen by CEIOPS makes sense.

"It applies the same capital reserve requirements for a property development in the middle of the Kazakh desert as for a residential development in downtown Munich.

"Furthermore the capital reserve required for government bonds is 0%, even if we are investing in Greek government bonds. Relative to other asset classes, government bonds are receiving preferential treatment."

Thomas saw clear implications for the real estate industry.

"This will feed through to the direct markets," he said. "Less capital will flow to the direct real estate market, and in the long term, there will be a decrease of stock and construction activity, leading to higher rents."

As a result of the new regulations, insurance companies will increase their bond allocations from 80-85% to 95%, said Michael Morgenroth, who took over as INREV chairman in June, succeeding Johan van der Ende.  

To address the issue, INREV made an approach to the insurance industry, but this was unsuccessful.

"Although quite a number of associations are representing the interests of the insurance and pension fund industry in Brussels, the specific issues of real estate investments in combination with Solvency II have not been picked up by them," Morgenroth said.

"The reason for this may be that the existing associations had other priorities based on the fact the highly dominating bond exposure of life insurers is in the area of 80 to 85%, while the real estate allocation is in the area of 5%."
 

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