EUROPE – Madrid and Dublin see real estate investment trusts (REITs) listed on the equities markets as one of the most effective and transparent ways of recapitalising their property sectors, according to the European Public Real Estate Association (EPRA).
The association said Spain and Ireland – despite being the two euro-zone countries worst affected by real estate crises that have damaged their banking systems and plunged their economies into recession – had adopted very different approaches to dealing with their property problems, both implementing new REIT regimes in 2013.
Philip Charls, chief executive at EPRA, said REITs had been instrumental in solving the US Savings & Loan crisis in the early 1990s.
"Also in Europe," he said, "they have proved very effective in channelling investment into top-quality, energy-efficient buildings for businesses, retail outlets and housing in … the last 10 years – particularly in France and the UK, where best-in-class REIT structures have been put in place."
Last month, the Spanish parliament approved an amendment to the country's existing REIT regime – Sociedades Cotizadas de Inversión en el Mercado Inmobiliario (SOCIMIs).
The amendment aims to reduce the tax payable on profits by these listed companies to zero, given that 80% of their earnings are distributed to investors who are then taxed on the dividend payments.
According to EPRA, the previous flat tax rate payable by the property entity itself proved to be unattractive to investors and stopped the formation of SOCIMIs.
This has now been removed, bringing Spanish REITs into line with the standard international model.
Mayra Merchán, general manager of the Association of Spanish Rental Property Companies (ASIPA), said the Spanish real estate investment industry has been cooperating closely with the government.
"The recent adjustments to the SOCIMIs legislation will create an attractive listed real estate investment vehicle for domestic and international investors alike, drawing urgently needed capital into Spain's economy, creating jobs and helping to tackle the mountain of debt in the financial system," she said.
Additionally, in Ireland, finance minister Michael Noonan announced during the country's 2013 Budget presentation last month that he would make provision for the establishment of Irish REITs this year.
Commercial and residential property values in Ireland have started to show signs of stabilising after the record crash of 2006-07, and yield levels are becoming attractive for international investors, EPRA said.
The association also argued that, with Irish banks severely constrained in the credit they can offer to the property sector, international investment capital of the type that could be channelled through REITs is required to help sustain the momentum of the incipient recovery in the market.