BRUSSELS-Proposed EU rules on derivatives could take $85.8billion (€65 billion) of working capital away from Europe’s economyby requiring property businesses to collateralize interest ratehedges with cash, according to the locally based European PublicReal Estate Association.

Businesses deemed to be financial entities must post cashcollateral into margin accounts to provide cover against default.Non-financial businesses, which use derivatives for hedgingcommercial risks, are excluded. However, property firms risk beingmisclassified as financial and subject to the onerous margincalls.

“Using interest rate swaps to reduce uncertainty associated withfluctuating interest rates is critical to property businessesbecause interest payments are often their single largest expense,and funding is required over long time periods and differenteconomic cycles,” says EPRA’s Gareth Lewis.