In France, where REITs were introduced in 2003, the market capitalization of the listed property sector has expanded 50% in just two and a half years, EPRA research director Fraser Hughes says in the report. At the end of June, total European real estate equities market capitalization was euro 89.64 billion ($108 billion), of which the UK comprised 49%, the Netherlands 15%, France 10%, Scandinavia 7%, Spain 6% and Germany 3%.
EPRA predicts that by 2011 the listed property sector will jump to euro 170.11 billion ($205 billion), largely as a result of a massive wave of property securitization in Germany, which would then make up 31%. Britain would still lead the European market at 43%.
Despite being the largest economy in Europe, Germany has one of the smallest listed property markets in the region with only three companies in the benchmark FTSE EPRA/NAREIT real estate equities index. The value of Germany's real estate, by contrast, is by far the largest in Europe at euro 7.05 trillion ($8.5 trillion), with only euro 389 billion ($470 billion) held by institutional property investors. Obviously, the opportunity to repackage these buildings in securitizations is significant, the study said.
The Initiative Finanzplatz Deutscheland, the main industry group lobbying for the introduction of REITs in Germany, expects that euro 124.47 billion ($150 billion) of domestic real estate will be floated within listed companies in the next five years. "A German REIT introduction, combined with the announced abolition in June 2005 of a penalty tax for German investors who hold foreign property stocks, will lead to a revolution in the German property sector in the coming five to 10 years," Max Berkelder, research director at leading Dutch property stockbroker Kempen & Co., was quoted as saying in the study.
In Britain, the government is addressing three key issues over the introduction of REITs, EPRA said. These include: ensuring that gearing is not used to manipulate returns and avoid tax; ensuring compliance with double taxation treaty obligations without the loss of tax revenue; determining how a conversion charge on companies that assume REIT status would apply to internal asset transfers.
In the Netherlands, discussions are underway between the finance ministry and domestic fund and real estate industry associations on an overhaul of fund investment rules, which have REIT-like features. The aim is to make the rules more appealing to foreign investors with a so-called "luxury version," which would be closer to Luxembourg's attractive fiscal-investment structure, to stem the flow of funds from the Netherlands.
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