BRUSSELS, BELGIUM-An increase in the proportion of European realestate held in the form of listed Real Estate Investment Trustswould be of immense benefit to governments, capital flows, andunderlying property markets, says European listed real estateassociation EPRA.

EPRA Finance Director Gareth Lewis says in a new study that theEuropean REIT market presents huge potential but is relativelyunderdeveloped; only 2.5% of Europe’s real estate is held throughthe fiscally-favored vehicles, around half global average. WhileEurope contains 41% of the world’s real estate, the proportion heldin listed vehicles is only 20%. "Closing that gap would generateimportant tax revenues for governments, improve inflows of capitalinto European member states, provide liquidity in an illiquidmarket, and improve the built environment," he says.

Since one key feature of REITs is to prevent double taxation forinvestors at corporate and shareholder level, this can be a concernfor governments worried about a cut in fiscal receipts. HoweverLewis says, "REITs generally include some form of obligatorydistribution requirement. This justifies the tax transparency ofthe entity: the tax revenue that isn’t generated at corporationlevel is paid by the shareholders, collected by the REIT in theform of withholding tax. The distribution requirement thereforeprovides a regular source of tax revenue to governments, evenduring economic downturns."