The vast German property market is likely to be opened up with Real Estate Investment Trusts expected to start trading on the stock exchange from January 01, 2007.
Open Ended and Closed Real Estate Funds currently manage approximately 250 billion Euro worth of property – the largest proportion of institutional real estate in the biggest European Real Estate Market.
It is estimated that German REITs could introduce real estate valued at 130 billion EURO to the stock exchange by 2010 originating from large corporates and public body corporates.
The Treasury of the German Government forwarded the bill to the ministries involved on 26 September 2006. The bill can also be viewed (in German) on the ministries’ website:
The bill is scheduled to be passed by the Upper House of the German Parliament in late 2006 or early 2007.
Should the green light be given, investors would be able to invest in German REITs backdated from 1 January 2007.
Historically German companies have sold real estate to a much lesser degree than e.g. US companies. The reason being that the recorded asset value was often far below the achievable asking price. In the event of a sale the secret reserve would have been taxable at the full tax rate.
A solution has yet to be found to ensure that REITs can acquire commercial real estate and real estate portfolios at an adequate scale. In order to make the transformation of portfolios with secret reserves into REITs more attractive a solution could be a temporary bisection of income tax including business tax.
As part of the bill temporary bisection of income tax including business tax is likely to become effective for open ended funds as well.
It is almost certain that only public companies listed on the stock exchange will be able to be transformed into REITs.
Currently German investors interested in a flexible real estate investment have the choice between Open Ended Real Estate Funds and Real Estate Shares. Some Open Ended Real Estate Funds have been fighting with an image crisis and outflow of funds since 2004. On a different note only 3 out of 40 German listed Real Estate Public Companies are comparable on an international level with regard to size and exchange transactions.
Despite the UK getting a head start there is a good chance the German Stock Exchange will attract extensive international capital given the high price of UK real estate.
By Claudia Gerken, senior transaction manger (Tenant Representation) with Jones Lang LaSalle. Gerken is with JLL Melbourne as part of the company’s global staff exchange program.*