Tax reforms 'may slow G-REIT momentum'

German companies may postpone conversion to real estate investment trust (G-REIT) status or put off launching new G-REITs until the SPD and CDU/CSU coalition government introduces corporate tax reforms that will lower the effective tax rate from 2008, according to an analyst familiar with the German property sector.

Legislation to introduce the G-REIT vehicle was approved by the country's lower house of Parliament, Bundestag, last Friday, but an initiative by the government to lower the corporate tax rate from 39% to about 30% may 'hold up sales of properties to REIT companies until early 2008', said Remco Simon, a property analyst at merchant bank Kempen & Co. 'The effective exit tax will then be lower than in 2007,' he stressed.

The German upper house or Bundesrat is scheduled to ratify the G-REIT legislation on March 30, 2007. This will create a sector analysts estimate could ultimately be worth as much as EUR 250 bn. The law, effective retroactively as of January 1, 2007, is expected to unleash a series of conversions to the new tax-efficient vehicle. German giants DIC Asset and Deutsche EuroShop are said to be the companies that will benefit most from the G-REIT structure. DIC Asset's ceo Ulrich Höller said Friday that the launch of the company's own REIT was 'quite possible' but conversion of the whole company was 'not a very likely option,' he said.

Last week, SPD and CDU/CSU's finance committee agreed to shorten the holding period required to apply for a lower exit tax when contributing properties to a REIT. Existing property companies will have to hold assets for two years to apply for half the usual exit tax on capital gains, while other parties will face a five-year holding period when selling assets to a REIT. Simon said this is a 'further improvement of the legislation,' as the previous draft included a holding period of 10 years in both cases.