Hungary to produce 1-3 REITs in next two years

Hungarian property professionals expect up to three tax-friendly real estate investment trusts (REITs) will be formed in the next two years under legislation which came into effect last summer.

Some 54% of delegates at the Property Investment Forum in Budapest last week said in a straw poll that 1-3 REITs, known as SZITs in Hungarian, may be established between now and end-2013. However, during a panel discussion no examples were given of companies seen as potential REIT candidates.

Just 11% of the 200-plus delegates thought at least four REITs will be formed in the next two years. Reflecting the fragile state of the Hungarian economy and the ongoing sovereign debt concerns in the neighbouring eurozone, 34% of the audience said no Hungarian REITs will be formed in that period.

Hungary is the third country in Central and Eastern Europe to introduce a REIT system after Bulgaria and Lithuania. Under the Hungarian legislation, a REIT must be listed on the stock exchange. It would be exempt from corporate tax provided it pays out 90% of its profits to shareholders.

The legislation also sets a capital requirement of HUF 10 bn (about EUR 32 mln) for companies converting to REIT status. By contrast, Bulgarian REITS have a capital requirement of EUR 250,000. Lithuania, which introduced its system in 2008, has two REITS and a capital requirement of about EUR 43,000.

The European average is EUR 13-15 mln.

Adam Balog, deputy state secretary at the Hungarian finance minister, told the forum that REITs would have to prove they are viable businesses in Hungary. He said the capital requirement may be eased at a later stage and that the government believed 5-8 REITs may be created in the country.

The Property Investment Forum is organised annually by Hungarian business and real estate media group Portfolio.hu.