Spain and Ireland, the two eurozone countries worst affected by real estate crises that have damaged their banking systems and plunged their economies into recession, are, despite very different approaches to dealing with their property problems, both implementing new real estate investment trusts or REIT regimes in 2013, the European Public Real Estate Association (EPRA) said.
Madrid and Dublin see real estate investment trusts listed on the equities markets as one of the most effective and transparent ways of recapitalising their property sectors.
“The Spanish and Irish governments have realised that the best way to attract domestic and international capital into their real estate markets and so underpin banking systems that are laden with property debt, is to make the sector attractive to investors,” Philip Charls, CEO of EPRA, said.
Charls added that “REITs have shown they can perform this role when they were instrumental in solving the US Savings & Loan crisis in the early 1990s. Also in Europe they have proved very effective in channelling investment into top quality energy-efficient buildings for businesses, retail outlets and housing, in our cities in the last ten years, particularly in France and the UK where best-in-class REIT structures have been put in place.”
On December 20, the Spanish Parliament approved an amendment to the country’s existing REIT regime–Sociedades Cotizadas de Inversión en el Mercado Inmobiliario (SOCIMIs)–which reduces the tax payable on profits by these listed companies to zero provided 80% of their earnings are distributed to investors who are then taxed on the dividend payments.
The previous flat tax-rate payable by the property entity itself proved to be unattractive to investors and stopped the formation of SOCIMIs, EPRA explained in a press release. This has now been removed, bringing Spanish REITs into line with the standard international model.
The experiences of past financial and real estate crises suggest the most efficient market restructurings are achieved through fresh equity and debt-restructurings rather than selling debt at steep discounts to face value. Spanish banks have made €80 billion in provisions for their toxic real estate assets and bad loans.
Mayra Merchán, General Manager of the Association of Spanish Rental Property Companies (ASIPA) said that the Spanish real estate investment industry has been cooperating closely with the government, and consulting with EPRA at the international level “to come up with a best-in-class REIT model that will help Spain solve the property market crisis that lies at the heart of its economic problems. We believe 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.”
In Ireland, Finance Minister Michael Noonan announced during the country’s 2013 Budget presentation on December 05 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 2006/2007 and yield levels are becoming attractive for international investors.