Legislative changes could boost demand for REITs

New regulations could create opportunities to boost the under-capitalised European real estate securities sector, according to Alex Moss, managing director of Consilia Capital.

Legislative changes could boost demand for REITS as well as the supply of assets and make REITs more effective than competitive vehicles, he argued.

‘In 1989 the US REIT market was smaller than the UK, and also Europe. During the course of the 1990s its relative weighting in the global index went from 6% to 46%. The main reasons were the creation of modern investible commercial real estate stock for REITs from the demise of RELPS (real estate limited partnerships) and regulatory change which led to the emergence of a liquid debt capital market which REITs could access.’

Moss was speaking during the PropertyEU regulatory Investment Briefing in Brussels at end-May.

In recent years, the European listed sector has declined as a percentage of the global listed real estate market and also has a lower percentage of commercial real estate in listed form, Moss said. Indeed, the European listed real estate sector is under-capitalised relative to the global average, and would require an increase of $213bn (+172%) to bring it into line with this average.

There is a sufficient pool of institutional quality, investible assets to support REIT growth in Europe, he added. ‘The debt markets are open, accessible, and available to refinance bank debt as witnessed by bond issues by European REITs over the last three years.’

Real estate has not been well-regulated in the past, but it should be regulated and companies must comply and compete if allocations to the asset class are increasing, Moss said. ‘It’s not necessarily positive, but it puts it on a par with other asset classes.’ A key thing is that REITs are treated in a sensible fashion and a common sense approach is adopted to exclude them from an overly burdensome environment, he added. ‘Tax efficiency - ie the transfer of assets without tax charges - is absolutely key.’

The full story appears in the July-August edition of PropertyEU. Subscribers can read it now by clicking on the PDF link below.