Italy’s steps to transform its real estate investment trust industry mirror changes made by Spain that helped attract foreign investors including Bill Gross and George Soros.
The Italian changes include lifting the maximum stake a single investor can hold in a REIT, known as a SIIQ in Italy, to 60 percent from 51 percent, according to a decree published in the state bulletin on Sept. 12. It also reduces the amount of recurring rental income the company must distribute to investors to 70 percent from 85 percent.
“Italy’s government has clearly had an eye on the robust health of the French REIT sector and how the changes to the regime in Spain and the launch of the structure in Ireland have spawned a series of successful IPOs,” Philip Charls, chief executive officer of the European Public Real Estate Association, said by e-mail. “This is an encouraging step.”
Reviving Italy’s slumping property market is key to Prime Minister Matteo Renzi’s plans to sell assets including publicly held real estate to bring in revenue as the country tries to trim its 2.2 trillion euros of debt. Italy may fail to achieve its fiscal targets for this year after the country’s economy unexpectedly contracted in the second quarter and entered a new recession, the European Central Bank said last week.
The Italian rule changes “are clear and very welcome,” Aldo Mazzocco, chief executive officer of Italian REIT Beni Stabili SpA, said by e-mail. “These are very important decisions that align Italy with the best European real estate markets.”
Italian commercial property transactions dropped 7.3 percent in 2013 compared to the prior year, according to data compiled by the Economy Ministry. The data excludes real estate used for industry and services.
Under the new REIT legislation, 50 percent of capital gains must be distrubuted within 24 months of the year that they are realized, according to the state bulletin. Changes take effect immediately and the decree will go to the Italian parliament for ratification in the next 60 days.
Spain reduced the tax burden for REIT investors starting last year to boost investment after real estate values fell more than 40 percent from their 2007 peaks. Pacific Investment Management Co.’s Gross, Soros’s Quantum Partners LP and Paulson & Co. head John Paulson have since taken stakes in Spanish REITs that have staged IPOs in recent months.
Investment in Spanish commercial real estate more than doubled in the first half from a year earlier to 3.23 billion euros, according to data compiled by CBRE Group Inc. Investment for the year will reach around 7.5 billion euros, a figure last seen at the peak of Spain’s real estate boom in 2006 and 2007, said Patricio Palomar, director of research and investment strategy at CBRE Spain.