Germany's lower chamber, the Bundestag, approved the introduction of the German real estate investment trust (G-REIT) on Friday. Now the final hurdle for the G-REIT will be in the upper house, the Bundesrat, on March 30. At this stage, however, no further changes are expected to the legislation, which will be effective retroactively as of January 1, 2007.
Germany's lower chamber, the Bundestag, approved the introduction of the German real estate investment trust (G-REIT) on Friday. Now the final hurdle for the G-REIT will be in the upper house, the Bundesrat, on March 30. At this stage, however, no further changes are expected to the legislation, which will be effective retroactively as of January 1, 2007.
The move is expected to unleash a series of conversions into the new tax-efficient vehicle by the end of this year. As widely expected, residential assets are definitely excluded from the G-REIT for the time being, although residential spaces for a maximum proportion of 49% will be allowed in mixed-use buildings and developments.
The coalition parties' financial experts have listened in recent months to substantial criticism of the draft G-REIT legislation. Back in November, they reduced the exit tax from 39% to 30%. 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.
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. Remco Simon, a property analyst at merchant bank Kempen & Co, said this is a 'further improvement of the legislation,' as the previous draft included a holding period of 10 years in both cases. 'It will be much easier for companies to convert into a REIT, as they need to hold assets for a short time only before being allowed the transfer.'