GLOBAL - Real estate experts have today unveiled the first blueprint of how an EU Real Estate Investment Trust (REIT) might work and insisted now is the time to push the proposal through the Commission in Brussels.
Property experts at the Barcelona Meeting Point delivered proposals for an EU REIT which recommend there should be one common standard and an acceptable level of regulation that could offer transparency and be understood by all participating countries.
Nils Kok, co-author of "The EU REIT and the Internal Market for Real Estate," insisted implementing an EU REIT would offer "lots of opportunities for diversification and risk reduction".
Approximately 13 EU states have REIT-like structures across Europe, most of which, according to experts, are developing subsidiaries that lead to less transparency. As a result, there is a need to review tax regulations of EU countries to make them more transparent in relation to REITs, they suggested.
Rosalind Rowe, partner for Real Estate Tax at PricewaterhouseCoopers, said: "People can play funny games with their tax law…to stop this adverse level of competition we have to have a tax regime that delivers a combination of spreading risk and enhancing performance."
Taxation laws are different in each of the EU member states and have led to more risks and fewer investment diversifications for REITs, with investors being put off by the high cost of tax imposed on their cross-border investments.
"There has got to be some kind of vehicle out there that gives them the ability to spread risk and at the same time doesn't penalise them through the various tax regimes," said Rowe.
The panel proposed tax-exempt entities like pension funds get their tax costs refunded by their own country of residence.
An EU REIT would also help EU members with smaller scale real estate markets, according to Kok, who said: "[Smaller countries] do not have the institutional property market to set up their own REIT, so it is very hard for them, but with an EU REIT it will be possible."
The Undertaking for Collective Investment in Transferable Securities (UCITS III) is currently the only framework available for all REITs.
Joseph Houlihan, chief executive officer for Cohen and Steers in Europe, said: "If you look at the current EU environment and the multiple patchwork of REITs, it is very, very hard for the general investor to make any sense of it."
Some of the main stumbling blocks to implementing EU REIT legislation include the differences in the real estate markets of various countries and their respective governments' desire to exert their own power over REIT policies.
US and Australian REITs have suffered much more than EU REITs in the last year, partly because most were financed by the capital markets and had a greater re-financing risk.
Joaquim Ribeiro, finance director and chairman for Sonae Sierra and member of the European Property Federation EU REIT committee, said: "Quite dramatic devaluations have taken place in those markets. Those REITs did not have much debt. Their leverage ratios were not so high, but what they had, was a different financing structure to European property companies or property REITs."
According to Kok, REITs are now less exposed to the debt crisis, making it a good time to consider implementing an EU REIT.
Rob Cornelisse, partner for Loyens & Loeff´s law firm in Amsterdam, said: "I think we should move forward as fast as possible. I think we have to be a big step forward in about five years from now."