G-REIT on course for April introduction

The legislation for the German real estate investment trust (G-REIT) is expected to be approved by lawmakers in time for introduction in April. Finance experts of the SPD and CDU/CSU coalition parties have agreed on the final draft and the two parties themselves will discuss the legislation on Wednesday. If everything goes as planned Germany's lower chamber the Bundestag will examine the legislation on Friday. The final hurdle for the G-REIT will be in the upper house the Bundesrat.

'At this stage no major changes are expected anymore and the possibilities that the law will be passed without problems by the end of March are good,' said Remco Simon, an analyst at Dutch merchant bank Kempen & Co. 'But as the legislation is still to be finalised and several details are still unknown, it is difficult to assess the final impact on each individual company.'

The coalition parties' financial experts have listened in recent months to some criticism of the draft G-REIT legislation. Back in November they reduced the exit tax from 39% to 20%. This is the tax rate applicable to the contribution of assets to the G-REIT. Now the exit tax will only apply to REITs and not to open-end funds as originally intended. The change makes the G-REIT 'more attractive,' according to Simon.

Under the new draft, existing property companies planning to convert into a REIT will have to hold assets for two years before acquiring REIT status, whilst other parties selling assets to a REIT face a five-year holding period. Simon said this is a 'further improvement of the legislation,' as the previous draft included a holding period of 10 years in both cases. 'It becomes much easier for companies to convert into a REIT, as they need to hold assets short before being allowed the transfer.'

As widely expected, residential assets are definitely excluded from the G-REIT for the time being. 'This makes Germany's regime strikingly different from any other real estate investment vehicle in the world,' Simon said. He added that issues arising from double taxation on foreign investments have not been solved yet. This will probably be dealt with later this year.