BRUSSELS, BELGIUM-An increase in the proportion of European real estate held in the form of listed Real Estate Investment Trusts would be of immense benefit to governments, capital flows, and underlying property markets, says European listed real estate association EPRA.
EPRA Finance Director Gareth Lewis says in a new study that the European REIT market presents huge potential but is relatively underdeveloped; only 2.5% of Europe’s real estate is held through the fiscally-favored vehicles, around half global average. While Europe contains 41% of the world’s real estate, the proportion held in listed vehicles is only 20%. "Closing that gap would generate important tax revenues for governments, improve inflows of capital into European member states, provide liquidity in an illiquid market, and improve the built environment," he says.
Since one key feature of REITs is to prevent double taxation for investors at corporate and shareholder level, this can be a concern for governments worried about a cut in fiscal receipts. However Lewis says, "REITs generally include some form of obligatory distribution requirement. This justifies the tax transparency of the entity: the tax revenue that isn’t generated at corporation level is paid by the shareholders, collected by the REIT in the form of withholding tax. The distribution requirement therefore provides a regular source of tax revenue to governments, even during economic downturns."
He adds: "It is now widely accepted that for investors, REITs represent a liquid, transparent and professionally managed asset class which allows for diversified exposure to real estate returns .. and high cash dividends." Collectively, growth in REITs and listed property can deliver benefits for Europe, including creating a more efficient and transparent market, which in turn generates substantial corporate and underlying market activity as well as a more liquid market. "As a result, the tax take from transfer tax on corporate share transactions, direct property transactions and the transfer of shares in REITs themselves is likely to increase following the introduction of such a vehicle and as the market evolves." After the introduction of the French REIT regime in 2003, Paris collected about $3.3 billion in exit taxes over a five-year period, as well as reaping other tax receipts.
The introduction of a European REIT regime will also assist European governments in drawing offshore funds back onshore and into the national tax net, EPRA says. Most offshore funds contribute very little to the tax base of European member states. The introduction of
REIT regimes can also prevent funds from migrating offshore in the first place. pie
Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.
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