Germany publishes G-REIT draft legislation

Germany is moving forward with legislation to introduce real estate investment trusts — known as G-REITS.

Finance minister Peer Steinbruck published the first official draft of the legislation in early October for discussion by the cabinet and parliament. The process is expected to be concluded by early 2007, with the introduction of the law set to be backdated to January.

REITs, which can be traded like any other stock, will be exempt from corporate and municipality tax, totalling 39%), provided they comply with the legislation. Dividends will be taxed at shareholder level.

Dutch merchant bank Kempen & Co. cautioned the final version could still differ from the draft as issues regarding which activities are eligible or not have yet to be clarified.

The US first introduced REITs in 1960 to facilitate investment in large-scale commercial properties. Subsequently, other countries including the Netherlands, Australia and Japan introduced similar legislation.

REIT legislation is set to come into force in the UK in January 2007, adding to pressure on Germany to follow suit or risk losing investment capital to other countries. In 2005, German investors had approximately € 93 bn tied up in open real estate funds, which cannot be traded like stocks. The legal details in the draft for the G-REITs seem similar to the UK legislation. The funds must generate at least 75% of their income from real estate investments and distribute at least 90% of their profits.