Germany introduces G-REIT

Germany has became the latest country with a real estate investment trust (REIT) structure. The Bundesrat, or upper house of parliament, approved the legislation on Friday that introduces the tax-efficient vehicle retroactively from 1 January this year.

Conditions for eligibility as a G-REIT include: a minimum capitalisation of EUR 15 mln; 75% of income generated from real estate investments, a maximum shareholding stake of 9.99%; a minimum of 15% of the company's share capital held by investors with a maximal 3% of voting rights. The fiscal benefits include: exemption from taxes for the company (Gewerbesteuer), which in exchange has to distribute 90% of the profits; halved exit tax until January 1, 2010, from which are excluded properties held for less than 10 years. Companies investing on properties abroad will be exempt from distributing 25% of profits, if other fiscal agreements do not apply.

Lawmakers have lowered the loan-to-value (LTV) for REITs from 60% to 55%, researchers at merchant bank Kempen & Co said. Property analyst Remco Simon pointed out that this would have 'a negative effect for the potential of REITs in Germany.'

But, Reita, the UK organisation for REITs and quoted property companies, said that property fund managers welcome the introduction of the G-REIT.

Patrick Sumner, head of property equities at Henderson Global Investors, said that REIT legislation covers 60% of the European listed property sector and the inclusion of Germany will broaden the sector further. Analysts estimate the German market could be worth as much as EUR 250 billion.

'While Germany has the largest property stock in Europe it is under-represented in the listed arena and the introduction of the G-REIT should encourage the creation of a significant listed German property sector, he said.