EPRA sees the beginnings of a 'REIT Renaissance' in the EU

Spain and Ireland, the two eurozone countries worst affected by real estate crises, are both implementing new REIT regimes in 2013, the European Public Real Estate Association (EPRA) said.

Philip Charls, CEO of EPRA, said this could be seen as the beginning of a 'REIT Renaissance in the EU'.

'The Spanish and Irish governments have realised that the best way to attract domestic and international capital into their real estate markets and so underpin banking systems that are laden with property debt, is to make the sector attractive to investors,' commented Philip Charls, CEO of EPRA.

REITs have shown they can perform this role when they were instrumental in solving the US Savings & Loan crisis in the early 1990s, he added.

Charls: 'Also in Europe they have proved very effective in channelling investment into top quality energy-efficient buildings for businesses, retail outlets and housing, in our cities in the last 10 years, particularly in France and the UK where best-in-class REIT structures have been put in place.'

The Spanish Parliament approved an amendment at end December to the country’s existing REIT regime – Sociedades Cotizadas de Inversión en el Mercado Inmobiliario (SOCIMIs), which reduces the tax payable on profits by these listed companies to zero provided 80% of their earnings are distributed to investors who are then taxed on the dividend payments.

The previous flat tax-rate payable by the property entity itself proved to be unattractive to investors and stopped the formation of SOCIMIs. This has now been removed, bringing Spanish REITs into line with the standard international model, EPRA said.

The experiences of past financial and real estate crises suggest the most efficient market restructurings are achieved through fresh equity and debt-restructurings rather than selling debt at steep discounts to face value. Spanish banks have made €80 bn in provisions for their toxic real estate assets and bad loans.

In Ireland, finance minister Michael Noonan announced during the country’s 2013 Budget presentation on December 5 that he would make provision for the establishment of Irish REITs this year. Commercial and residential property values in Ireland have started to show signs of stabilising after the record crash of 2006/2007 and yield levels are becoming attractive for international investors.

With Irish banks severely constrained in the credit they can offer to the property sector, international investment capital of the type that could be channelled through REITs is required to help sustain the momentum of the incipient recovery in the market.