Growth in Other European Countries

In 2003, France introduced les Sociétés Françaises d’Investissements Immobilièrs Cotées (SIIC), its version of the REIT, which is a vehicle with a corporate income tax exemption for specific items of income.

According to Ressos, the listed real estate market in France has increased by 50 percent since the introduction of REITs and further REIT growth is expected.

French REITs have been modified with tax legislation which allows companies to sell their real estate to SIICs in exchange for SIIC shares. According to Ressos, this option is only available until 2007, but by opting for this method, companies will only have to pay half of the capital gains tax liability.

EPRA’s Fraser Hughes says the Netherlands’ current REIT structure is under review, with the longer term view to make it more attractive and comparable to other European structures. Of the emerging economies, both Turkey and Russia have a form of REIT structure in place.

The Netherlands structure, “Fiscale Belegginstinstelling” (FBI), was introduced in 1969. Discussions continue to make FBIs more attractive to foreign investors by relaxing some restrictions on foreign shareholders, taxes and development activities.

Turkey established a REIT structure in 1998 that was similar to other countries including exemption from corporate taxes and a requirement that at least 49 percent of their shares are floated to the public.

The first Russian real estate fund was established in 2003, with more than 50 Russian real estate funds currently in existence, according to the Deloitte Newsletter of September 2005. These Russian real estate funds are generally similar to Western Europe REITs in terms of tax treatment and are considered transparent for direct taxation purposes. Recent legislative changes in Russia limited the investment scope of Russian real estate funds, allowing them to invest in projects only once all documentation and permits have been obtained by developers. Both Russian and international investors have been investing in these real estate funds, which have focused on housing development projects, but are now beginning to look into commercial real estate.

“In the smaller Scandinavian countries which are more socialized, with less growth, the commercial real estate market is not that large, so there won’t be a tremendous number of companies converting to REITs,” says Neil Bane of the Carlton Group. “There’s a great recognition of the potential benefits of REIT legislation in some of the Eastern European countries. The biggest complaint in countries like Russia is that there is not enough modern residential housing for the rising middle and upper class. One way to fix this would be to develop residential REITs to create more multifamily housing.”