REICs - Real Estate Investment Trusts in Greece
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In Greece, Real Estate Investment Trusts (REITS) are known as Real Estate Investment Companies (REIC), and the first one was listed June 28, 2005, although the articles 21-31 of law L.2778/1999 authorizing them was passed in December 1999.
The law was flawed at first, so some changes were made by amendments.
REICs must be listed on the Greek Athens Stock Exchange. They are for the exclusive purpose of managing a portfolio of real estate mainly, but can also own securities and cash.
They must own initial capital of at least 29.35 million euros.
Eurobank began in 2003.
Greek REITs or REICs Face Various Restrictions
Over 80% of the Greek REIC's assets must consist of real estate property in Greece or in the European Economic Area (EEA). This may include subsidiaries which are at least 90% owned and engaged exclusively in real estate activities.
The Greek law defines real estate as commercial business property - this seems to exclude residential and undeveloped land.
They may hold real estate in a non-Greek or non-EEA country, but that cannot be more than 10% of their total portfolio. REICs can invest in moveable assets to meet operational needs, but this is limited to 10% of their total.
One individual property investment may not exceed 25% of the REIC's total asset values.
A REIC is Required to Emphasize Ownership and Management, Not Speculation
They cannot develop property from the beginning. They may own property underdevelopment only if its within 25% of the final cost.
Greek REICs may not invest more than 25% of their net in property bought through financial leasing arrangements. And each such contract may not exceed 10% of their total net equity.
And no more than 10% of their properties can be ones in which they hold less than 100% ownership.
They're also forbidden from flipping properties. Once they buy a property, they can not sell it for at least 12 months.
Leverage, or gearing, is restricted to 50% of the value of their portfolio.
Greek Real Estate Investment Trust Requested Minimum Distributions are Low, but Tax-Free
These Greek Real Estate Investment Trusts must distribute at least 35% of their annual net profits.
Greek REITs do not pay income taxes, but must pay an annual 0.2% tax on their asset values. But their property taxes are only 0.1% instead of 0.6%, and when they buy property, they're exempt from the transfer tax.
They're also attractive for investors, because there is no tax withholding of dividend payments from REICs. There is a 10% mandatory tax withholding from dividends pay by other types of companies.
And there's no withholding of taxes because dividends from REICs are not taxable income to private individual investors, and neither is their capital gains.
(Companies must pay taxes however.) They are exempt from the Large Property Tax.
Ever six months the Body of Sworn-In Valuers (BSV) evaluates the properties the REIC owns. The BSV also does an appraisal prior to the purchase of any property. The property's purchase price must be within 5% of the appraised amount.
A property must be held for a period of at least one year.
Economic Outlook for REICs in Greece
Greece got a lot of bad publicity recently due to the threat of its government failing to pay interest to owners of Greek government sovereign bonds. The economy has suffered from the financial crisis of 2007-2009.
Commercial rents have gone down a lot, and some commercial real estate properties may go on the market because of distress.
However, this may be an advantage for REICs, because they can raise additional capital in the capital markets, and can take advantage of the weakness of other real estate companies to pick up a lot of bargains.
This is how REITs really expanded in the United States in the early 1990s. They were able to buy up properties at a low cost because of the savings and loan crisis of the 1980s leading to the Resolution Trust Company.
However, the amount of net income distributed to REIC investors is relatively low. 80 to 90% is much more common.
Still, that's high considering the law requires them to distribute only 40%.
Real Estate Investment Companies in Greece have a lot of potential left to fulfill. As of this writing, there are only three. And two out of the three are subsidiaries of banks. And the third is in a strategic partnership with a financial group and its properties are described as mainly bank outlets. Clearly, the banks have found value in placing their brances in the hands of another company and leasing the space.
Greek REICs are:
Eurobank Properties REIC -- commercial properties in four countries, but mainly Greece.
Trastor REIC -- first REIC formed and listed in Greece
MIG Real Estate REIC -- office buildings and bank outlets and other buildings around Greece.
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