REICs were first introduced in Greece by Law 2778/1999. They are investment vehicles used in large scale real estate investment, and they usually distribute the majority of their net earnings in dividends. By law, a REIC must list on a European stock exchange soon after its establishment. The aim behind their introduction was to create a stable and favorable tax regime for large scale real estate investors, both Greek (including the state) and foreign, thus attracting more investments in this sector. This is accomplished by applying corporate governance principles to modern real estate investment. In this way, the rules and procedures are clearer, simpler, while reduced rates of taxation apply.
The legal framework governing REICs has been amended by Laws 4141/2013 and 4209/2013, 4281/2014, 4416/2016 and 4514/2018 providing a more flexible regulatory environment and reduced tax rates.
The new legal framework for REICs, coupled with the newly granted possibility to participate in joint ventures, special purpose vehicles, long-term concession schemes as well as public property sale and leaseback programs, could help to improve the industry’s growth prospects and enhance its role in the effort to put public real estate into more effective use. Through REICs, real estate becomes a liquid instrument and an investment tool that is accessible not only to institutional funds but also to individual investors, enabling them to invest in strictly supervised listed companies and high-value property, without the normally
associated management problems.
REICs
Under Law 2778/1999 a Real Estate Investment Company is a Greek company limited by shares whose sole purpose is to acquire and manage real estate property.
REICs advantages
A REIC is a highly attractive investment vehicle, which provides particular benefits. REICs operate under a favorable tax framework, providing significant incentives for the investors, both medium and long-term. REIC shares offer a broader opportunity-set for investors, who seek the diversification benefits of investing in professionally managed real estate. REICs are also obliged to pay out most of their recurring earnings to their shareholders and they have specific limitations on debt levels. Last but not least, investing in REICs is also suited to the investment needs of pension funds, due to the generated long term cash flows.
“New” REICs
The institutional framework of REICs under Law 2778/1999 was reformed by the recent Laws 4141/2013, 4209/2013, 4281/2014, 4416/2016 and 4514/2018 which have broadened the range of investment options and the scope of activities for REICs, providing greater flexibility. Regarding the expansion of investment options, REICs have been given the possibility to invest also in:
Residential property (up to 25% of their total investments),
- Tourist property
- Long-term (minimum 20 years) lease and/or concessions for the use or commercial exploitation of real estate such as land for the construction of hotels, marinas, areas subject to privileged or special construction and residential development of areas of special natural beauty whose exploitation is allowed under particular conditions, commercial real estate and industrial property
- Property under construction, and
- Land with building permit.
Moreover, they are allowed to participate in joint ventures schemes or other business arrangements for the development of prime properties (exceeding € 10 million) and they may invest in rights arising from financial leases, building rights, as well as long-term concessions of real estate projects. REICs are, thus, expected to exploit the opportunities offered by this reform to invest in public property development projects too.
Establishment requirements
A REIC has to be formed as a special purpose Greek “Societe Anonyme” with registered shares, pursuant to an authorization granted by the Greek Regulator (Hellenic Capital Market Commission – HCMC), which evaluates therefore the investment plan, the organization, the company’s technical and financial assets, as well as the reliability, suitability and relevant experience of its managers-to-be and the existence of corporate governance rules.
The initial minimum share capital required is twenty five million Euros (€ 25,000,000), fully payable upon establishment of the company. The share capital of the company consists of contributions of cash, money market instruments, securities and property, immovable or movable, which serve the operational needs of the company.
REICs listing
By law, A REIC must apply before the Athens Stock Exchange Market in Greece for the listing of its shares within two years after its establishment, with a possible extension of 36 more months granted by the Hellenic Capital Market Commission. The company must have been tax audited (with the exception of the last published fiscal year prior to the admission) and with mandatory Corporate Governance compliance. At the time of listing, the share capital of the company must have been invested at least up to fifty percent (50%) in real estate property.
REICs permitted investments
A REIC is obliged to invest at least 80% of its total assets in real estate and in rights, shares or units in commercial or industrial property, or in residential property up to 25% of its total investments, or in plots where commercial/industrial/or residential buildings will be constructed (where the request for construction permit/license has to be submitted within five years from acquisition).
Investment in real estate properties in third countries outside EEA is permitted up to 20% of the Company’s property portfolio value.
Real estate development is generally prohibited, with the sole exception of the company’s undertaking the completion works or refurbishment of a property, as long as the cost of works doesn’t exceed 40% of the company’s property portfolio value and the works are completed within 36 months from the issuance of the construction license or the acquisition of the property.
A REIC may also enter into a pre-agreement for the purchase of a property under development under specific conditions.
Regarding the purchase of shares or units by a REIC, it is permitted as long as a REIC purchases at least 80% of the shares or units of real estate management companies, holding companies that invest solely in such companies, UCITS that invest in REICs and in real estate development and management companies, other REICs or real estate mutual funds in Greece or other EU countries or finally EU-Alternative Investment Funds (AIFs) investing solely or mainly in real estate. In case of REICs’ investing in shares or units of real estate management companies or holding companies, this particular investment may concern also such companies under incorporation, on the condition that their available funds are respectively invested within 12 months from the date of REICs’ investment.
REICs may be granted loans and credits for amounts which do not supersede on their whole 75% of REICs total assets. REICs may also establish under conditions subsidiary companies for the purpose of acquiring loans, as well as set up liens and encumbrances on their property as loan security.
REICs main tax aspects
REICs enjoy a number of tax-exemptions, making them a valuable investment vehicle. At company level the main benefit is the exemption from company income tax, with the exception of dividends acquired in Greece (according to Law 4389/2016 and in effect from 1.6.2016). REICs have to pay tax with a rate set at ten percent (10%) of the valid European Central Bank intervention rate (Interest Reference rate) increased by one point and is calculated on the average of the investments, plus any available funds, at their current value. The tax payable biannually cannot be less than 0.375 % of the average of investments, plus any available funds, at their current value. The tax is payable to the competent Tax Authority within the first fifteen days of the month following the period recorded in the bi-annual investment tables.
No withholding tax or stamp duty is imposed on dividends distributed by REICs. However, if the beneficiary is a Greek company which subsequently distributes dividends, this further distribution is subject to taxation based on the applicable dividend rate (15% as of 1.1.2017, Law 4389/2016 as in force)
REICs are also exempt from Property Transfer Tax and Duty for purchasing a property (currently at 3% plus a 3% duty in favor of the municipalities). There is also an exemption on Supplementary Tax on rental income and reduced rates of annual property taxes. The stocks issued by a REIC, as well as the transfer of real estate to a REIC are exempt from any kind of tax, duty, stamp duty, contribution, right or any other charge in favor of the State, public legal entities or in general third parties. The subsequent transfers of real estate by a REIC are subject to the ordinary tax provisions. Exemption from any tax on Capital Gains deriving from: a) the transfer of real estate property and b) the transfer of shares in subsidiaries. Exemption from taxation of gains due to capital’s goodwill from the sale of shares in the case of individuals (natural persons) holding less than 0.5 of the share capital (Law 4172/2013 as in force)At investor level, there is no further income tax liability for shareholders (exhausted at REIC level), dividends received by shareholders are exempt of Greek Withholding Tax, while sale of REIC listed shares is subject to the 0.2% transaction tax. Source: Hellenic Exchanges Group, June 2016
REICs payable dividends
A REIC must pay annual dividends to its shareholders of at least fifty percent (50%) of its annual net profits. – A lower percentage or no percentage may be distributed, following a general meeting’s decision, under the condition that the company’s articles of association include such a provision, either for the creation of an extraordinary non-taxable reserve fund made up of other earnings except capital profit, or for the distribution of free shares to the shareholders via increase of the share capital (according to the provisions of codified Law 2190/1920).
REICs conversion to a mutual fund
A REIC is allowed to be converted into a real estate mutual fund, under certain law provisions (article 12a of Law 1969/1991).
REICs examples
In August 2012, Canadian Fairfax Financial Holdings invested € 200 million in EFG Eurobank Properties, raising their share from 5.7% to 42”.
In November 2013, the Dutch private equity Invel Real Estate and the Israeli diamond king Beny Steinmetz announced a joint purchase of 66% of Pangea REIC, Ethniki Bank’s real estate unit, for € 653 million.
In October 2015, the merger by absorption of the company with the corporate name “NBG Pangaea REIC” by the company “MIG Real Estate REIC” was completed by virtue of the No. 100279/1.10.2015 Announcement issued by the Ministry of Economy, Infrastructure, Shipping and Tourism and now the Company has been renamed to “NBG PANGAEA REAL ESTATE INVESTMENT COMPANY” and is one the four REICs in total currently authorized by HCMC in Greece, alongside with Grivalia Properties REIC, Intercontinental International REIC Trastor REIC (formerly Piraeus REIC) and BriQ Properties REIC.
