The French listed real estate investment trust model or SIIC, which has attracted billions of euros of foreign investment into France and boosted the quality and sustainability of its urban environment, may see its attraction to international investors reduced by new taxation rules, the Chief Executive of the European Public Real Estate Association (EPRA) said on Wednesday.
EPRA CEO Philip Charls said: "The French SIIC regime belongs to the Grand Cru of listed real estate internationally and has provided the model to aspire to in other major property markets such as the UK and Germany.
"It has been a reassuringly robust presence for the property industry amongst the debris of the ongoing financial crisis continuing to service the infrastructure needs of French businesses and residents in a professional and prudent manner, whilst providing investors with stable, long-term cash flows. So any threat to this stability would be unwelcome for the French economy and international investors."
He was speaking at the SIMI real estate trade fair in Paris.
The French government has detailed plans to lower the threshold of foreign ownership in SIICs where international investors are required to pay withholding tax on dividends at source to 10% of the shareholder base, from 20%, and also increase the tax rate to 30% from 20%.
In addition, the authorities have withdrawn the tax exemption that individual investors are able to benefit from by holding SIICs within their PEA pension plans (Plan d'Epargne en Actions). The SIIC business model could in future also be subject to reduced flexibility if the government decides to require that they invest a part of their portfolios in residential property.
International investors make-up around 60% of the total shareholder base of the French listed real estate sector, in line with other main equity sectors, and they directly contribute to the many hundreds of thousands of jobs in France that are dependent on the property industry. The quality and sustainability of the built environment in Paris and other cities also benefit. The French Real Estate Federation (FSIF) estimates that the 50 or so French SIICs will investment 10 billion into the domestic real estate investment market in the next three years alone.
The French SIIC was introduced in 2003, with an aim to encourage capital flows into the professionally managed French built environment. Since then, the total market capitalization of the French listed sector has grown to just over 50 billion from little more than 10 billion, making it the largest contributor to the expansion of the entire European listed real estate sector over this period, where it now accounts for 25% of the FTSE EPRA/NAREIT Europe Index and is second only to the UK in size.
The main drivers behind the success of the SIIC model include its transparency to investors; the stable long-term cash flow income from rents, which are attractive to pension funds and insurers, who have seen the returns on their investments for retirees plummet; and the generally high quality of corporate management and the property assets the French companies invest in.
Philip Charls concluded: "The French listed real estate industry has to compete at an international level to maintain its premier status in a global market, as well as to ensure the future quality and sustainability of the urban landscape in France. During a crisis period of intense demand for international capital, any new tax measure, which dilutes this competitiveness can't be good for French industry or the economy."
Source: Bellier Financial