October 2006 Update: German Real Estate Investment Trusts (G-REITs) and Proposed Tax Relief for Real Estate Divestments
This is an update to a previously distributed Real Estate Alert on this very topical subject including an updated white paper on the topic referenced below.
In line with its voiced intentions, the German Federal Ministry of Finance (BMF) recently circulated its draft legislation for German real estate investment trusts (G-REITs). It sees all corporate, regulatory and tax issues previously under scrutiny resolved and, indeed, the draft does not contain any insurmountable unpleasant surprises compared to the industry's "wish list". Despite a few skeptic voices in Germany's grand coalition, G-REITs are expected to become effective as planned on 1 January 2007 – and, if need be, retroactively. In addition to traditional real estate players, domestic and foreign companies owning real property in Germany are monitoring the developments with considerable interest: the BMF is contemplating relieving Germany's principally 40 percent capital gains taxation on transfer of real estate to G-REITs. This provides ample reason to take a closer look at things to come.
The G-REITs market could reach €127 billion (US$160 billion) within the next four years. This trend will be fuelled by substantial tax relief on the sale of German property and the large number of German companies holding real estate (US 25 percent, Germany 75 percent). This white paper should be of interest to companies or groups holding German property, all international real estate players, investment banks, mortgage banks, acquisition finance and asset finance companies, international facility management companies and property consultants.