The EU and the property industry have come a long way in terms of mutual understanding - even appreciation - over the past 10 years or so. Driving this progress is the European Property Federation and its highly energetic founding director general Michael MacBrien who has galvanised a considerable weight of support behind his agenda. He talks to Martin Hurst about the achievements thus far and challenges ahead.
With the growth of real estate as an asset class in its own right alongside the significant increases in cross-border activity we have witnessed, it was inevitable that the EU would need to take an interest sooner or later.
This in turn explains the setting up in 1997 of the European Property Federation, a body whose members today own and manage €800bn in assets. "It was set up because real estate was coming onto the EU agenda," says EPF's director general, Michael MacBrien.
"The European Commission had delved into construction liability and produced a Work Site Safety Directive with major implications for client responsibility, property-focused EU environmental legislation was becoming a big issue, and for all this the European authorities had no property interests to talk to. The experience from those early days was useful a few years later when the commission tabled energy efficiency legislation for buildings, and especially now as we deal with the second wave of environmental and energy legislation and as we actually promote EU legislative initiatives facilitating pan-European property investment - like the EU REIT," he says.
MacBrien has extensive experience of European affairs going back around 25 years. He feels very strongly about Europe and the benefits of working together for the common industry good. He is also very clear about the need for the EPF to manage and enhance the relationship between Europe's property industry and the European Union.
"A key issue is that, while European laws are drafted by European Commission officials, very few staff are allocated to this function, which means that sometimes mistakes are made. EPF serves to redress these imbalances and help the European Commission, the European Parliament and the Council of Ministers understand what technical changes need to be made to make something workable. An example was the Energy Performance of Buildings Directive, where an awful lot had to be done to get exactly the right requirements for energy efficiency renovation of building stock and energy certification."
The EPF can point to some clear achievements. "The first has been to make EU law like the Environmental Liability Directive or the Energy Performance of Buildings Directive far better adapted to the constraints that property owners and investors have to work under and, in so doing, far more workable," MacBrien says.
"Other achievements concern our action to ensure the freedom for property companies to invest EU-wide without restriction. For instance, we got the Commission to resist attempts by EU candidate member states to retain controls on land acquisition by ‘foreigners' in their countries for long ‘transition' periods following accession. Or again, we got the commission to oppose state aid to municipal and social housing companies competing with private landlords for middle and high income tenants in certain member states. Non-national investors and landlords, who are necessarily private, are always the first to suffer from that kind of thing."
So the industry has much to thank the EPF for. Yet it is also the main source of disappointment. "The disappointment is the widespread ignorance of EU issues by property professionals," MacBrien explains. "There isn't much awareness of what the EU does for real estate investors and the property industry in general. There is a view that globalisation is fantastic and allows for investment all over the place, and very little sense of the immense privilege offered to property investors by the existence of the EU Internal Market for Real Estate.
"Beyond the EU, ‘freedom to invest in real estate' means that you can invest until a country says no, as was the case with China. In the EU there are no controls at all, and you can invest and bring all your service providers and work with them locally under your conditions. That is the qualitative difference between the EU, which is a policy backed up by a court of justice that will defend your intrinsic right to all of this - and the situation globally where treaties are here today, gone tomorrow."
Nor do property professionals have any idea how much property-focused legislation is in fact European, doubtless because they never see or hear of the EU Directive, just the national implementing legislation. For instance, 80% of environmental and energy efficiency legislation in any given member state is in fact European.
The relationship between the EU and the property industry has clearly undergone some change over the years. So how much progress has the EU made in understanding property as an investment asset class and what challenges remain in this respect? "Ten years ago, because property-focused EU legislation was new and rare, Commission officials and members of the European Parliament were a little short on real estate culture," MacBrien explains. "A decade of working together has improved that a lot. Let's say they understand real estate as well as national officialdom does."
That said, the degree to which ‘national officialdom' understands real estate varies greatly from jurisdiction to jurisdiction. "In the UK and in the Netherlands real estate was turned into a viable profession long before anywhere else, so has had more time to wash over into government. However, it would be a little ambitious to extrapolate that for some parts of the European continent. Look at the German REIT debate. The debate over the inclusion or exclusion of residential - some of the arguments that were being made were not well informed."
The EU-REIT has been the subject of much debate over the past year. So how have the prospects advanced? What are the main obstacles? "The prospects are better than we could ever have hoped," MacBrien says. "Sadly, I can't say much more without startling the forest animals and endangering the whole project. We now have a lot of very technical work to do. It's going to take some time. But we have captured some very potent interests."
On the subject of interests, there has been some debate about how well the industry is cooperating, specifically the various industry bodies. "The best thing EPF ever did was to bring together ELO (European Landowners' Organisation, RICS, TEGoVA (The European Group of Valuers' Associations) and ULI Europe to pool our resources and talents and pull together for an EU REIT in what we call ‘The EU REIT Coalition'", MacBrien says. "ULI has had to step back from active support now that we are into the hard lobbying stage, because that's not really what they do, but we are immensely grateful for their help during the launch phase."
EPRA, the European Public Real Estate Association, could also contribute much to the debate but for some years has distanced itself from the EU-REIT. This changed when EPRA welcomed its new CEO, Philip Charls. "Talks with EPRA about membership of the EU REIT Coalition continue," says MacBrien. "A successful outcome would be excellent for the campaign."
The EU REIT Coalition was founded officially at Barcelona Meeting Point at the end of 2006.
"Before the EU REIT campaign, we were a classic EU private sector lobbying organisation, reacting to legislation that was tabled or about to be tabled. Our main purpose was to make sure that property-relevant EU legislation took proper account of the constraints under which the property industry works.
"Doing that kind of thing is not particularly easy, but the difficulty is multiplied by 10 if you're actually getting those same authorities to table legislation that they haven't been thinking of - that is a far greater obstacle and that is what is involved in the EU-REIT initiative. To be able to do that kind of thing you really need the whole industry behind you plus the property industry's "mother" companies - the institutional investors, banks, insurance companies, pension funds, etc."
MacBrien explains why such backing is essential. "The commission does not table legislation unless it feels that there is momentum and that it is not going to embarrass itself - unless it is sure that interests in member states are not going to jump up and say that this is another bureaucratic, undemocratic attempt to over-legislate and over-regulate. MacBrien enthuses about the benefits of cooperation. "Let me be clear: alone or dispersed, none of us would have achieved anything," he says.
"It has been a real adventure but also a hard slog. All of these organisations are large, powerful, old and proud. Everyone has to be happy, and there is no room for organisations or individuals on ego trips. Creating a situation where everyone is happy to march together to a single objective is tremendously inspiring but it is also very painstaking work involving endless diplomacy. We're all so amazed at what we've done together for the EU REIT that we've taken this a step further and joined forces to help the European Commission with its second generation of building energy legislation and with its coming Water Performance of Buildings Directive."
"We are all in favour of energy and water efficiency renovation and certification. What we don't need is a plethora of certificates that the owner has to provide and pay for and the buyer/tenant has to struggle through. We want energy and water usage to be combined into a single environmental performance certificate."
So what are the main challenges facing the real estate industry, and how can the EPF and the EU help to meet them? "The major challenge for the industry is understanding the business opportunities offered by the freedom to invest Union-wide, and understanding that the industry will never get an optimal market unless it fights for it. Otherwise, why would the EU legislator bother? There are three main prongs to this:
Investors are uncertain about the turmoil in financial markets. Is there a role for the EU in reassuring the industry? "Many of the problems faced by real estate, such as the subprime crisis, are not real estate generated; they come from problems with the financial industry. The EU has already done a lot, through basic regulation of banking supervision. But that was a generation ago, and some form of European financial supervision authority is probably now necessary. The current crisis has probably strengthened the case for this."
But many in Europe are concerned about centralisation, not least here in the UK. How do we mitigate national government concerns?
"These are problems that go far beyond real estate or financial markets", MacBrien says. "It's about a people's, a nation's, sense of self. Some peoples have a true sense of ‘Europeanness' that comes on top of their national self, like a double personality. Others, for the most honourable historical and cultural reasons, just don't feel that way. Concerning any topic - the Lisbon Treaty, common banking supervision or even the EU REIT - that matters. What will be seen as a useful pooling of sovereignty in some countries will be viewed as an intolerable erosion of national freedom in others.
"The solution is a more differentiated Union, by which some states integrate more than others. This has been going on for a generation, and although, in the beginning, both the federalists and the Eurosceptics thought it was a scandal, it works just fine, as we see for the euro, the border-free Schengen zone, etc. and now for defence, the fight against major cross-border crime, integrated border control, common visa, asylum and immigration policy, judicial cooperation in civil and family matters with cross-border aspects, etc. When the British government says the Lisbon Treaty is different from the Constitution, you better believe it. The UK now has an opt-out from all of this.
"For the property industry, this differentiated, two-tier Europe means an important foundation for everyone (freedom to invest, safety from cartels, common energy and environment regulation), and a bonus for property companies investing in the advanced integration states (euro, EU REIT, etc). Companies in the less integrated states can have their cake and eat it. A national regime for home, and an EU passport that the affiliate in a more integrated state can use for its operations in all the ‘enhanced co-operation' states."
