Spanish government aims to boost the crisis-hit real estate market

Real Estate Investment Trusts (REITs) have been introduced in Spain. Act 11/2009, which came into effect on 28.10.2009, allows listed real estate investment companies to be set up under the name of Sociedades Cotizadas de Inversión en el Mercado Inmobiliario (SOCIMI). The law applies retrospectively for tax assessment periods from 1 January 2009 onwards.

The Spanish government sees this investment instrument as a way to promote the rental market and boost the real estate market. It also wants to encourage new and principally foreign investors to invest in Spanish real estate. The country’s real estate business slumped considerably as part of the worldwide financial crisis.

In contrast to real estate investment funds, which have to invest at least 50 percent of their portfolio in residential properties in Spain, SOCIMIs can invest in all types of real estate. This means that commercial properties such as shopping centres and office complexes, nursing homes, indoor car parks, hotels and restaurants can also be included in a SOCIMI. The work of a SOCIMI may also include regeneration projects and real estate developments prior to renting out properties.

'By introducing SOCIMIs, the Spanish government has come up with the right response to the real estate crisis. REITs make the Spanish market more interesting again for international investors', explains Ignacio del Val, partner at the international corporate law firm Rödl & Partner in Madrid. 'The stumbling blocks that have barred the way to investment in commercial real estate up to now have finally been removed.'

In contrast to the tax exemption provided for in the bill submitted by the former Spanish Minister of the Economy, Pedro Solbes, in October 2008, SOCIMIs are subject to a special tax regime that levies a fixed corporate income tax rate of 18 percent. Under certain conditions, income is exempt when it comes from the transfer of real estate properties or shares that are assessed at the general corporate income tax rate. 'The fixed rate taxation that has now been specified weakens the REITs’ appeal', de Val says. 'This represents a missed opportunity to attract more international investors.'

In order to qualify as a SOCIMI, the main area of business of such a company must lie in investments in urban real estate properties that are to be rented out. At least 80 percent of a SOCIMI’s assets must be invested in rental properties which the company owns in full. Real estate properties that form part of the company’s fixed assets must be rented out for at least 3 years whereas if these real estate properties have been developed or refurbished by the SOCIMI, they must be rented out for at least 7 years.

The minimum capital is EUR 15 mln. A SOCIMI must be listed on an organised market and is therefore subject to the Spanish stock exchange’s rules concerning transparency and disclosure (the Spanish Stock Exchange Act or "Ley del Mercado de Valores"). Once a year, they must distribute to their shareholders at least 90 percent of their rental earnings and, if applicable, any added value that has arisen from the sale of real estate.

'Spain has learned from the introduction of REITs in its European neighbours,' points out Ana Sacristán, lawyer and real estate expert at Rödl & Partner Madrid. 'SOCIMIs could make a valuable contribution towards attracting new investors for real estate projects. However, we cannot expect to see a recovery in the Spanish real estate market until some time in 2010 at the earliest.'

By Rödl & Partner

Rödl & Partner has its own branch offices in Barcelona and Madrid and is among the leading German corporate law firms on the Iberian Peninsula.