RIGHTS BUT REITs: Opposing the global introduction and consequences of Real Estate Investment Trust (REITs)


After a longer period of development in Northern America – with disastrous consequences on social housing about 20 important countries have introduced national REITs during the recent years and another half dozen is planning to do the same within the coming year.

Although negative consequences in the USA, Canada and elsewhere are obvious, the introduction of REITs in most of the countries took place without protests and even without critical debate. They just happened in the extra-democratic spaces where financial lobbyists make their deals with governments. REITs are one of the examples of the silent over-taking of the worlds’ economic governance by the neo-liberal promoters and profiteers of financial globalism.

Germany in this game maybe besides Honkong – plays the curious role of an exception. Since 2005 the huge national tenants association as well as a majority of the co-governing Social Democrats (SPD) and other political and housing actors developed a fundamental opposition to the so called rationalism and transparency of REITs.

This article aims to give an overview on available information about the global role of REITs and it”s consequences. Based on the critical debates in Germany it tries to suggest arguments against copying the US-REITs-model. It raises questions about the needs and chances to make REITs a prominent issue in international housing rights and anti-privatisation struggles.



Throughout the world, Real Estate Investment Trust (REITs) are playing a rapidly increasing role in organizing private financial investments in housing and cities. After a longer period of development in Northern America with disastrous consequences on social housing about 20 important countries have introduced national REITs during the recent years and another half dozen is planning to do the same within the coming year.

Although negative consequences in the USA, Canada and elsewhere are obvious, the introduction of REITs in most of the countries took place without protests and even without critical debate. They just happened in the extra-democratic spaces where financial lobbyists make their deals with governments. REITs are one of the examples of the silent over-taking of the worlds economic governance by the neo-liberal promoters and profiteers of financial globalism.

Germany in this game maybe besides Honkong – plays the curious role of an exception. Since 2005 the huge national tenants association as well as a majority of the co-governing Social Democrats (SPD) and other political and housing actors developed a fundamental opposition to the so called rationalism and transparency of REITs.

This article aims to give an overview on available information about the global role of REITs and its consequences. Based on the critical debates in Germany it tries to suggest arguments against copying the US-REITs-model. It raises questions about the needs and chances to make REITs a prominent issue in international housing rights and anti-privatisation struggles.

1. Context

Vancouver, World Urban Forum, June 2006. During the opening ceremony of the third World Urban Forum HIC and a couple of other organisations celebrate a protest in front of the entrance of the luxury conference hall. “Peoples orders against violations of housing rights had been discussed and prepared in the movements the weeks before. Now representatives explain and read them to the protesting crowd: Forced mass evictions an Nigeria, Zimbabwe, India, the Philippines Cuts of subventions on social housing in the USA, in Canada Missing support for the victims of natural disasters like the Tsunami and Katrina

Among them: One order which at the first view seems come from a totally other sphere. The sphere of yields, assets and securitization, normally populated by bankers and fund managers but not by social movements.

A peoples order, prepared by tenant activists from Germany, the UK and USA, states:

By introduction of Real Estate Investment Trusts (REITs) at national stock exchanges the U.K. and Germany government plan to open given sectors of regularized, public, social or affordable rental housing for concentrated financial speculation at large scales, as experience, for instance in the United States has shown.

REITs in the real estate sectors encourage the irreversible replacement of long-term social investment at low rates of profit by short-term financial investment at very high rates of profit. REITs stimulate public, municipal, industrial and other such owners to sell off and privatise their properties.

REITs within the rented housing sectors lead to higher rents, disinvestment and demolition, large-scale privatisation, the splitting of rented housing into individual leaseholds and freeholds, the replacement of social housing by expensive condominiums, forced evictions and loss of social accountability, participation and local jobs. Municipalities and other public institutions lose strategic instruments with which to promote affordable housing and socially inclusive cities.

REITs, which are tax-free investments as long as most of the profits are returned to shareholders, lead to loss of tax receipts and to the selling off of public infrastructures. They lead to a massive concentration of financial power and anti- democratic political influence and make housing markets dependent on international speculation bubbles. They are a threat to tenants world wide.

What did happen that social housing movements not only blame governments for results of their policies on people as they normally do but warn against some future plan, which normally only financial experts are aware about? Lets go back some months in time and only some hundred miles south the American Pacific cost.

What is REIT?

Real Estate Investments Trusts (REITs) are joint stock companies that primarily derive their income from real estate i.e. ownership, operation, funding, or a mixture. They are free from corporate tax and pay out high parts of their profits.

There are national regulations on the minimum REIT income from and/or investment in real estate. USA, UK (planned): minimum 75 % of earnings, Canada: 90 % of earnings, Honkong: 90 per cent of fixed assets, Japan: 75 % of fixed assets, France: only earnings from rentals, Germany (planned): 75 %.

They are obliged to pay out most of their realised profits to their shareholders. 90 % in the US, 95 % planned for UK, 90 % planned for Germany, Australia: 100 %.

The companies are free from corporate taxes. Investors (banks, insurance companies, pension funds, individuals) may pay taxes on received dividends according to their individual income tax rate.

In most countries, REITs are listed public limited companies; however, they also exist as investment funds (private REIT, i.e. in the U.S.).

Because of the heavy risk that huge corporations build tax islands and control the market some countries have regulations on the minimum number of shareholders or the maximum shares of one shareholder. USA: At least 100 shareholders, the five largest shareholders must hold below 50 % together; Canada: At least 150 shareholders; Korea: max. 10 % of shares by one shareholder; Singapore: At least 500 shareholders; Britain: below 10 %; Germany (planned): share of one holder limited to 10 %, at least 15 % of the shares must be owned by small shareholders with max. 3 %; France, Belgium: no regulations, France for 2007 plans limits.

2. REITs create rental refugees: The AIMCO case

It is 9am, December 6, 2005: Sheriff’s cars parade into the Lincoln Place Apartment complex in Venice, California. They are accompanied by private guards of property owner AIMCO, and pile into the hallways, pound on the doors. The sheriffs present court orders to vacate their homes to 52 resident households. Some are allowed 20 minutes to leave their apartment homes. Others are given even less time. Empty-handed, these locked-out and outraged mothers, kids and students gather angrily in front of their homes. Door locks are being changed.[1]

California has 52 new homeless families.

AIMCO is a large REIT, and one example for what financial lobbyists and a majority in the government would like to push onto their Fall agenda: Large REITs shares can be traded on the stock market; they do not pay corporate taxes; 90% of their profits are distributed among shareholders (banks, insurance companies, pension funds).

Lincoln Place was built in 1949 with plenty of trees and open spaces between architecturally perfect buildings. Property prices around Los Angeles rose 20% per year over the last five years. Stabilized rents in LA can only by increase by 3% each year. Since the acquisition of Lincoln Place Garden Apartments in 2003, AIMCO intends to demolish the complex and replace it with a mixture of expensive, high-rise condominiums and rentals. That plan, however, became difficult to realize due to protests of 800 renting households. In addition, the apartment complex was designated as a State Historic Resource in 2005. AIMCO filed suit against the State historic commission, got the designation voided. On May 5, 2006, the State Historical Resources Commission reinstated the designation. Eviction of the remaining households at Lincoln Place is planned for September 2006.

Thus AIMCO has made good use of their political influence and put renters on the street. AIMCO uses a California law that allows owners to cancel leases, if they are going out of the rental business. “They are misusing this law. AIMCO lies, claim the renters, and try to stop even more forced evictions with petitions, lawsuits and political actions.

Starting in the early 90s, REITs targeted subsidized/HUD housing, explains Michael Kane of the American Tenants Alliance, NAHT. That resulted in a tremendous concentration of ownership of apartment complexes.

With 240,000 rental units, AIMCO is one of the largest private apartment complex owner and operator in the USA: One speciality: buy-outs of HUD properties that are being demolished to make room for more lucrative buildings. It happens outside of California, too, as in Dallas, Sacramento or Baltimore.

In 2003, AIMCO implemented a plan to sell a third of its properties and buy apartments in hot real-estate markets such as Los Angeles and New York City, where rents are among the highest in the country. The company sold 118 apartment complexes — 47 of them affordable-housing properties — for $960 million, its 2005 annual report says. AIMCO purchased eight properties in New York, New Jersey and California where the average rents are three times higher than those for the properties sold. [2]

Another speciality is disinvestments, disrepair and bad maintenance on social-housing stocks. The Charlotte Observer[3] reported on September 2006:

  • In 2000, a study found AIMCO’s taxpayer-subsidized properties in predominantly African American neighborhoods in Dallas received substantially lower HUD inspection scores than those in white areas, said Sandy Rollins, president of the Texas Tenants Union.
  • In 2002, HUD fined the company $129,580 for failing to alert tenants to lead-paint hazards at apartments around the nation.
  • In 2005, former tenants at Forest Ridge Apartments in Winston-Salem sued AIMCO and Goler Metropolitan Apartments, alleging apartment owners failed to provide safe and sanitary housing. The sides reached a settlement.
  • In a social housing complex in Charlotte tenants complain of roaches, chronic leaks from ceilings and broken toilets, and other disrepair. On stormy nights, rain leaks into bedrooms. Since 2000, city code enforcement inspectors have investigated 63 complaints of health and safety violations. Many tenants say they cannot afford to leave.
    AIMCO is the largest player in Charlotte’s Section 8 housing program. Section 8 means: Landlords sign government contracts to shelter low-income tenants. In exchange, tenants put 30 percent of their income toward rent. Taxpayers pay the rest.

The profit motive “is at odds with providing decent affordable housing,” said Jim Grow, an attorney at the National Law Project in Oakland, Calif. “The strategy is to do as little (maintenance) as they can and keep HUD off their back.” But Lance Graber, executive vice president for AIMCO, said it’s “shortsighted” to think only socially motivated organizations can provide decent, affordable housing. The federal government, he said, has decided that the private sector can often do a better job than government agencies and nonprofit groups.

AIMCO keeps good contacts with right-wing Republicans, reports Kane. These corporations expect short-term profits and try to get rid of social contracts/structures as fast as possible. Increasingly AIMCO also takes affordable but non-subsidized rental units off the market, evicts the tenants, fixes-up the properties to rent or convert to condos at luxury rates.

Our portfolio includes many affordable apartments, wrote AIMCOs CEO in 1999. Many subsidized programs will expire in a few years, and plenty of properties are prime targets for profitable conversions.

There is one ‘locust of a special kind among those profiteering: According to some information resources in the US Deutsche Bank owns almost 8% of AIMCO stock and is one of the largest shareholders. Deutsche Bank made a socially responsible business commitment with the UN Global Compact. Deutsche Bank did not explain to those renters in Venice, CA (Germans are among them, incidentally) how socially responsible it is to lock out disabled, elderly and children.

August 30, 2006, Lincoln Place Tenants Association (LPTA) took its campaign to prevent the imminent eviction of 40 elderly and disabled households to these major investors and lenders of AIMCO.[4]

We’re concerned that the real owners of Lincoln Place, namely Aimco stockholders, are not aware that this travesty is being perpetrated in their name and for their benefit,” said Sheila Bernard, president of the Tenants Association. Aimco before had announced it will file evictions with the court on September 1 and that the elderly and disabled could be subject to forcible removal by the sheriffs. Lucy Siam, a 77 year-old disabled resident who lives on $869 a month says, “If I am forced from my home, I have no idea what I’m going to do. Today’s rents are completely beyond my means. I can hardly make ends meet as it is.” Celia Harriman, an 84-year old low-income resident who has suffered a stroke and pneumonia says, “Facing eviction has exacerbated my health problems. I fear I will not survive all the pressures of a move. Won’t someone help us?”

“Lincoln Place is where the rubber meets the road on socially responsible investing (SRI) in real estate. Up till now, SRI has concentrated primarily on how the physical environment is affected. It’s time to look at the harm done to people, too,” said Laura Burns, a member of the LPTA who was evicted by Aimco last year.

Many of the banking institutions and mutual funds that are the largest investors in Aimco have pledged that they will only engage in socially responsible investment. Deutsche Bank, for example, is a signatory to the UN Global Compact and JP Morgan Chase has committed to enacting policies that will not cause social harm. “We cannot believe that these companies consider the eviction of seniors and disabled on fixed incomes, who have no possibility of finding alternate housing anywhere in the Los Angeles area, a socially responsible thing to do. Many of these tenants have lived here for decades. Their entire lives, social and health networks are here in this place,” said Bernard, a teacher whose pension, ironically, will be administered by CalSTERS, a joint venture partner with Aimco. “We are appealing to these institutions to live up to the public commitments they have made.”

Aimco stock is held primarily by institutions and mutual funds. According to the current Yahoo Finance website, the largest institutional holders are Cohen & Steers, Inc., JP Morgan Chase & Co., Deutsche Bank AG, Goldman Sachs Group, Inc., The Vanguard Group, Security Capital Research & Management Co., Inc., Barclays Global Investors UK Holdings Ltd, State Street Corporation, Morgan Stanley, and FMR Corp. According to the same website, top mutual fund holders of Aimco stock are Fidelity Real Estate Investment Portfolio, Vanguard Specialized-Reit Index Fund, Goldman Sachs Mid-Cap Value Fund, American Century Real Estate Fund, Cohen and Steers Realty Shares Inc., Hotchkis and Wiley Large Cap Value Fund, DWS RREEF Real Estate Fd II, Cohen and Steers Realty Income Fund, Price (T.ROWE) Mid-Cap Value Fund, and Hotchkis and Wiley Mid-Cap Value Fund.

In October 2006 AIMCO posted notices to lock out last remaining Lincoln Place tenants, 40 households, all elderly and/or disabled.

Who is interested in REITs?

Financial investors are interested in REITs because they perform high annual yields with limited risks. From 1971 to 2003, the average Equity REITs annual yield in the USA was approx. 13 per cent. The Dow Jones Industrials increased by approximately eight per cent per year over the same period.

Institutional investors (pension funds, banks, insurance companies) have collected huge amounts of capital and seek for profitable financial investments worldwide. REITs are a welcomed option in their portfolio strategy.

For the founders of REITs (persons, banks, funds etc) are an attractive option to build a profitable business platform.

For Private Equity Funds in the field of real estates REITs are a welcomed option to exit their short term engagement.

For owners of large real estate portfolios companies or the public sector REITs are a very attractive option to sell real estate (housing and other). Especially if these sales get privileged by the taxation systems (planned i.e. in Germany, India, Pakistan).

States and public institutions through REITs have an attractive option to sell out their public real estates (privatisation of housing, land and infrastructure) in order to improve their budget with short term perspective. By introducing REITs they may also earn from taxes paid on the sale.

Companies by REITs can get rid of their hidden concrete gold (including rental housing for employees and other obligation) and free up the capital for investments in their key business or other financial transaction.

For neo-liberals REITs are an instrument to get rid of public engagement and introduce market relations.

For competing governments and global cities REITs are an element for strengthening their financial business and stock exchanges.

3. USA: REITs own country

The U.S. Congress created REITs in 1960 to give anyone and everyone the ability to invest in large-scale commercial properties., the US-REITs-umbrella NAREIT writes at its homepage.[5] The REIT industry has grown dramatically in size and importance since then, and during the last decade in particular. REITsalso known as real estate stockshave outperformed most other major market benchmarks over three decades with significantly less volatility.

Indeed: From 1971 to 2005 the number of 34 REITs with a market capitalization of 1,5 billion $ jumped to a number of 197 REITs with a market capitalisation of 331 billion $. Reasons for this fast development include the burst of real estate bubble in the early 90ies and the burst of the new economy in the late 90ies when private capital (pension funds, insurance companies, bank trust departments, but even individuals) looked for an alternative to invest and found the new assets in the again emerging real estate hype.

There are three major types of REITs :

  • Equity REITs own and operate income-producing real estate. This type is the dominating.
  • Mortgage REITs lend money to real estates.
  • Hybrid REITs are companies that do both.

Within the Equity REITs residential REITs are dominating. In 2005 17 % of the US REITs were residential. Only offices were more important (19 %). With a total return of 30.4 percent, REITs in 2004 outpaced most other stock market benchmarks for a fifth consecutive year.

The most immediate sources of revenue growth are higher rates of building occupancy and increasing rents, NAREIT explains, a principal which is repeated permanently throughout the world.

Today there are approximately 200 publicly traded REITs in the U.S., with assets totaling more than $475 billion. In the U.S, besides these companies which are traded on stock exchange even not publicly traded REITs exist, so called private REITs.

Since about 2004 a new trend is occurring in the U.S: More and more publicly traded REITs go private. Large share holders are taking the REITs from the stock exchange and create private REITs. One reason is the beginning burst of the U.S. housing bubble which makes the stock exchange risky. Even raising interest rates on mortgage play a role and the many new opportunities to invest money in real-estates around the world. REITs within the set opportunities for investors are just one important pawn in the game, they create them and liquidate them depending on their current strategy to increase their returns.

Besides AIMCO there are a couple of other important residential REITs in the U.S.. Some examples:

  • One of the largest residential REITs in the USA is the Chicago based Equity Residential Property Trust with 6,8 bn capitalization[6]. In 2004 judges in Palm Beach charged that Equity Residential violated Florida law by charging tenants an extra 60 days’ rent plus a one-month penalty fee for terminating their leases early. The Illinois-based company also allegedly charged tenants an extra two months’ rent if they stayed through their lease term but failed to give 60 days’ notice of their intention to vacate. Equity Residential has been very active in condo-conversion.
  • Praedium Group[7] runs six REIT funds that have acquired office buildings, retail properties and multi-family homes across the country. Most holdings are in New York, California and Texas. Invests money from pension funds, foundations, endowments and other financial firms. With $5 billion in assets it requires a 15 to 20 percent return on its investments.
    Praedium founder Russel Appel has been outspoken about the profitability of low-income neighborhoods. We look to take advantage of the opportunities in the marketplace, said Appel in Commercial Property News last year.
    Praedium plays an important role in co-financing the business of Pinnacle Group in New York City where Pinnacle owns over 400 rent-stabilized buildings. The properties are managed through dozens of separate limited liability corporations. Many tenants charge that the supers do shoddy renovations, which have incurred code violations and ruined previous fixtures. They then send bills at inflated rates to residents. Tenants say they have received hundreds of eviction notices, lawsuits and harassing letters, along with exorbitant improvement costs and rent increases beyond the legal limit. They fear they are being forced out to make room for condos. Two Manhattan properties, 706 and 725 Riverside Dr., have begun the conversion process.
  • In 2002 tenants groups reported about a long and arduous battle with landlord Madison REIT[8] in Oakland, a city where 65 percent of the residents had been renters, but nevertheless enjoyed less rights than in other cities. After rents were raised by 20-65 percent by a landlord who claimed exemption from Oakland rent control laws a group of tenants petitioned the Oakland Rent Arbitration Board. Finally Madison REIT rescinded the rent increases.
    Madison Park REIT ($60 million in assets ) claims to be specialized in creating value for the company and for the community by making adaptive reuse of older existing buildings[9] in the traditionally unfashionable blue-collar city of Oakland.
  • After Metlife[10] Inc.’s (MET, an insurance company) started the process of sale of Peter Cooper Village/Stuyvesant Town on Manhattan’s East Side in August 2006, a couple of REITs announced interest to take over 11,200 apartment units over 80 acres of prime Manhattan land. The value of the property gets estimated at about $450,000 a unit, or $5 billion in total. About 75% of the apartment units are rent regulated, rents are roughly half the market rate. Rents can only be brought up to market rates when a tenant leaves, and many tenants or their families have been living there for decades, Any new owner paying the equivalent of $450,000 per apartment is going to be eager to create a money-making luxury enclave, real estate executives say.
    The new owner could check all of the leases carefully to see that the name listed on the lease is the person actually living in the unit, press reported. Over time, the owner could see significant 50% rent increases or more as tenants leave.
    Thus, many fear that Manhattan will loose one of its last and most important residential area which is affordable for workers, artists and the middle class. Anyway it will be the largest real estate deal in US history.

4. Canada: How REITs raise rents

Canada introduced REITs in 1994. In March 2005 the market capitalisation of 25 REITs made 12.3 bn.

In June 2002 the Canadian Centre for Policy Alternatives[11] reported about a substantial rent increase in residential buildings, which had been taken over by REITs. ResREIT, one of the largest Canadian residential REITs, took over apartment buildings with moderate rents and by using changed legal regulations on rents systematically implemented substantial rent increases.

Property developers are taking advantage of policy and program changes by the Harris-Eves provincial government since 1995, Shacott reported. They are buying up rental buildings with moderate rents, then using weakened tenant protection laws to drive up the rents and bank the profits, a big chunk of them tax-free.

In Toronto the rents of a block with 424 dwellings, which was bought by ResREIT in 1999, jumped 22% to $1,021 within two years. The provinces official rent Profiting from a manufactured housing crisis 3 review guideline was 2.6% in 2000 and 2.9% in 2001, Shapcott reported. ResREIT raised the rents four times higher than the guideline amount. In another 115-unit apartment building bought in 1998, when the rents were an average of $660, ResREIT pushed up the rents 37% over three years to $902, well over four times the official rent review guideline.

ResREIT in 2004 merged with another large Canadian REIT, CAPREIT, creating one of Canadas largest multi-family residential property owners, with a national presence from coast to coast, as their business reports praises[12]. The acquisition effectively doubled the size of CAP REITs property portfolio, broadened its geographic diversification and enhanced the portfolios quality and composition by adding a number of high-end luxury buildings situated in superior downtown locations in key cities.

In its annual business report even CAPREIT praises itself for having increased the rents from the average $877 to $889 within one year. Rent increase and high occupancy ratios build main strategies for the increase of the net yields. Through its active property management strategies and proactive capital investment programs, CAPREIT strives to achieve the highest possible average rents in accordance with local market conditions, the report states.

In 2006 Michael Shapcott reported that in Ontario annually 60,000 tenants get evicted, because they cannot pay the exploding rents any longer. Many become homeless. The numbers of the homeless people on the roads of the Canadian large cities increased substantial. In Vancouver, where the REITs sector and the establishment of expensive condo apartments booms, several thousand homeless people live in the streets of a threatened workers neighbourhood. Obstructed, psychologically ill, drug-addicted house in close lanes between rotten pensions.

2006 InterRent International Properties Inc., (“InterRent”or the “Company”) announced a merger of the accounting and finance operations of InterRent and Silverstone Equities Inc., and the proposed conversion of the merged entitiy into a public real estate investment trust. InterRent is a rapidly expanding, growth oriented real estate company engaged in building shareholder value through the acquisition, ownership and operation of strategically located income producing multi-residential real estate, with 1,209 apartment suites under ownership and an additional 127 suites under contract in Ontario, a press release stated.[13] Silverstone Equities is the General Partner of three Limited partnerships owning 577 apartment units in Mississauga, Stratford, Cambridge and Guelph, Ontario.

What are the general risks and dangers of REITs?

  • REITs lead to loss of tax receipts.
  • REITs in the real estate sectors encourage the irreversible replacement of long-term social investment at low rates of profit by short-term financial investment at very high rates of profit.
  • REITs stimulate public, municipal, industrial and other such owners to sell off and privatise their properties.
  • REITs because of their share holder value orientation on high returns lead to higher rents, disinvestment and demolition, the splitting of rented housing into individual leaseholds and freeholds, the replacement of social housing by expensive condominiums, which can be followed by forced evictions.
  • Loss of social accountability, participation.
  • Loss of local jobs.
  • Municipalities and other public institutions lose strategic instruments with which to promote affordable housing and socially inclusive cities.
  • REITs lead to a massive concentration of financial power and anti- democratic political influence.
  • REITs make housing markets dependent on international speculation bubbles.
  • REITs even increase the economical pressure on other public real estates.

5. REITs worldwide: Preparing the invasion

Until the 90ies a couple of countries introduced national REITs or similar structures. But its was not before the rapid growth at the hot markets in the USA, Canada and Australia since late 90ies that REITs became a globally leading vehicle for transnational investments in real estates. The REITS industry since some years is intensively striving for new coasts: Asia and Europe build the main focuses for the globalization of the business. The fast REITs-boom of the past years is even affecting countries which started their own REITs decades ago and they lead to a harmonization of alternative national types of real estate investment vehicles.

The Netherlands in 1969 was the first European country to introduce REITs. Rodamco Europe Netherlands-REIT (market capitalization: $8,785.4) is one of the largest REITs in Europe.

The Dutch are major investors in the global real estate market. For example, ABP Investments is the second-largest pension fund in the world, designated for Dutch government workers and those in the educational sector. ABP has offices in both Amsterdam and New York.[14]

Meanwhile the Netherlands REIT structure is under review, in order to make it more competitive to the new European structures. The Netherlands especially is losing investment funds to Luxembourg. Even the French and Belgium REIT structures, and the proposed structures in the UK and Germany are less restrictive. Thus it is discussed to relax restrictions on foreign shareholders, taxes and development activities. There is a debate that shareholder restrictions, the minimum required distribution of dividends, withholding taxes on distributed dividends should be abolished. But it is more likely that the Dutch Government firstly will strip restrictive interpretation of the permitted activities (no project development) and secondly the ownership/shareholders requirements.[15]

Australia introduced REITs (Listed Property Trusts) in 1971. LPTs are tax-free at the trust level, the annual distribution requirement for LPTs is to distribute 100 percent of income to unitholders. In 2005 the market capitalisation of REITs was USD 60 bn. The Australian LPT sector is the most entrenched in the world, accounting for nearly 10 percent of the capitalization of that country’s stock market. 49 percent of domestic investment-grade property in 2005 was already on LPT balance sheets. As a consequence, when LPTs these days eye growth, they have no choice but to look to other markets.[16]

Australians are forced to invest a part of their income in private pensions and they do that predominantly in real estates. For that reason the amount of capital is larger than the available real estates.

Westfield Group the largest Australian LPT, is a leading global retail property owner with interests in more than 126 shopping centers in Australia, New Zealand, the U.S. and the U.K.. In 2006 the Listed Property Trust Record Realty which belongs to Allco Finance Group bought office buildings from German Telecom. Australian Fonds intensively are seeking for attractive investments[17]. Australian investors expect that prizes at European real estate markets will rise.

At the same time Australian tenants suffer heavily from rocketing rents.
During the last decade in Australia the proportion of low-rent homes has fallen by about 15%, the average monthly payments on new loans have increased by about 50% ($500), average house prices relative to income have almost doubled, opportunities to rent public housing have fallen by about 20%. Currently more than 1.5 million lower-income Australians, especially renters and recent purchasers, are incurring housing costs above 30% of their income. 67,051 recipients of Commonwealth Rent Assistance (in Victoria) pay more than 30% of income on housing (and hence live in unaffordable housing).[18]

Turkey has a REITs-similar structure since 1989. More recently, the play a more and more important role not only for commercial real-estates, but even for housing and for foreign investmentsTurkish REITs are exempt from corporate taxes. Although they are required to float at least 49 percent of their shares to the public, all Turkish REITs are set up by large established financial groups that retain a controlling interest.[19] There currently are 10 REITs with a combined equity market capitalization of more than $1.3 billion listed on the Istanbul Stock Exchange (ISE). The largest Turkish REIT, Gayrimenkul Yatirim Ortakligi, has a market capitalization of more than $500 million. IS Bank is the largest shareholder controlling stake of 50.9 percent.

Although handicapped by the extreme inflation over the past decade Turkish REITs are even becoming a vehicle for foreign investors. In 2006 the huge Deutsche Bank (Germany) established a certificate which allows investments in Turkish REITs. Arab capital, especially from Dubai, is heavily investing in commercial complexes and skyscrapers in Istanbul.
The Turkish market is booming. Real Estate prizes in Istanbul annually increased at about 14 20 % during the past years.[20] Turkish construction industries in the first quarter of 2006 grew at 26 %, not only because of large infrastructure projects , but even because of huge new housing schemes for middle class which raise at the outskirts of large cities throughout Turkey. As economy is booming and interest rates are low, more and more private households are financing their housing by mortgage. It is estimated that the volume of private mortgage will raise from 12,1 bn $ today to 60 bn $ with the next years. The size of the total real estate market in Turkey is estimated at $ 82 billion.

Brazil since 1993 has a structure called Fundos de Investimento Imobilirio (FIIs), that is referred to as a REIT, but it is mostly used for private investments in specific projects. The first Brazilian FIIs were used to fund new developments and as an exit strategy by developers. In 1995 the first FII began to trade publicly and entered the retail market. In 2005 64 FIIs operated in Brazil. In 2004, the volume of FII trades increased by 700 percent, although the actual number of transactions remains low. The dominant factor are high interest rates, which makes it difficult for FIIs to compete with funds. [21]

Italy does not have a real REIT structure, but since 1994 investors are allowed to invest through special funds called fondi di investimento immobiliare, or FII. These are described[22] as pools of investments held jointly without legal individuality and managed by a management company, called the societ di gestione del risparmio, or SGR. The FII is tax exempt.
Before the election in 2006 a financial lobby group was pushing for the creation of real REITs.

Spain so far does not have a REIT structure, but other forms of privileged real-estate-investments. Spanish real estate capital uses French REITs as a form for investments in Spain. Consequently, there is a debate on introducing real REITs in Spain as well.

Belgium introduced a REIT-like structure in 1995, called SICAFI (socit d’investissement capital fixe en immobilire). Belgium is home to 11 REITs, with a combined equity market capitalization of nearly $5 billion.[23] The largest Belgium REIT is Cofinimmo with 1,7 bn US$ market capitalization. It owns the seventh-largest office property portfolio on the European market. Even other large Belgium REITs are active in the office markets, especially in the booming eurocrats sector in Brussels.
56 percent of the real estate investments in Belgium are by foreigners, including the German open-ended funds with 22 percent of total investment, Dutch with 15 percent and U.K. with 6 percent. Increasing investment comes from Ireland (5 percent), the Middle East (4 percent) and Australia (3 percent).

Greece since 1999 has REICs (Real Estate Investment Company) and REMFs (Real Estate Mutual Fund).

The Mexican government 2004 made changes in its Ley del Impuesto sobre la Renta (LISR), that could lead to the creation of REITs. The LISR extends tax benefits to trusts whose business purpose is to purchase and/or manage real estate. The properties include hotels, office buildings, industrial properties, supermarkets, hospitals, factories and apartments.[24]

Even Germany with its closed and open-ended real-estate funds have a partly comparable structure for real-estate investments. But they did not attract foreign capital.

6. The REITs revolution

It is since about 2000 that the international market for tax-privileged publicly listed real estate companies started to explode. More and more countries since then have introduced vehicles which orientate on the US-model. Meanwhile some speak about the REITs revolution.

In June 2006 the REIT week, an annual conference organized by the US umbrella NAREIT focused on the growth of REIT industries outside the USA. The property market capitalisation of REITs today is 700 bn $US, speakers at the NYC meeting reported, – more than half outside US. Australia, Belgium, Canada, Australia, Turkey, Thailand, Malaysia have shown strong growth. The aim is to create free flow of capital throughout the world, a speaker stated. We are only at the beginning.[25]

Later in the year NAREIT published: For U.S. investors in particular, investing outside of their domestic market now means they can gain exposure to emerging REIT markets in Europe and Asia. Based on the historic growth, performance and diversification benefits of the U.S. REIT market, this could offer some very interesting opportunities going forward.

In the first seven months of 2006 private investors spent more on Real Estate Investment Trusts than in any period before. From January to July the transaction volume amounted to 47 billion US Dollar.

The return from REITs worldwide has more than doubled since the beginning of 2003.

Pension funds and insurers are among the biggest investors in REITs. The California State Teachers’ Retirement System, the second-largest US pension fund, plans to almost double the proportion of its assets invested in real estate to 11 percent in the next six years from 6 percent in 2006. Its investments last year included REITs in the US and France.[26]

National REITs and similar structures around the world

According to national law REITS have diverse names in the various countries.

Country Name Acronym

Introduction in


Real Estate Investment Trust



Netherlands Fiscale Belegginstinstelling



Australia Listed Property Trusts


Turkey Gayrimenkul Yat *’r*’m Ortakligi



Canada Real Estate Investment Trust



Brazil Fundos de Investimento


Belgium Socit d Investissement capital fixe en immobilire



Greece Real Estate Investment Company



Taiwan Real Estate Investment Trust



Japan Real Estate Investment Trust




Korean Real Estate
Investment Trust

Corporate Restructuring REIT





Singapore Singapore Real Estate
Investment Trust



France Socits d Investissements
immobiliers cotes



Hongkong Hongkong Real Estate
Investment Trust







Israel Keren


Malaysia Islamic REIT


U.K. Property Investment Fund


planned 2007
Germany Deutsche REITs (Project)


planned 2007
India planned
Pakistan Islamic REIT planned
Dubai Islamic REIT planned

7. REITs in Asia

Only 5 years after the first introduction in Japan the REITs market in Asia doubles each year. Within 5 years REITs controlled 27 billion US$. In 2005 observers expected that until 2010 the REITs could control about 160 $ US in real estates. But this depends on the developments in China and India.

Japan introduced J-REITs in 2001. Within 4 years 15 J-REITS controlling 17 billion $US were brought to the market. In June 2005 17 J-REITs made a market capitalisation of USD 20 bn.

During the period of J-REIT introduction commercial property (office building etc.) was most important while the invasion of J-REITs in housing had to face difficulties because of strict legal regulations on evictions, because of the small scales of Japanese housing units and the limited market for high prize condos. [27]

However, during the past years new residential REITs appeared.[28] Since March 2004 six new real estate investment trusts raised 159 billion yen ($1.3 billion) to buy apartment buildings in Japan. Singapore’s CapitaLand Ltd. and Arcapita Bank BSC, a Bahrain-based investment bank, pooled $300 million in May to buy rental housing in Japan.
After falling as much as 80 percent following the crash of 1990 land prizes are increasing again. Japanese are moving back to cities.

Investment banks such as Morgan Stanley have taken advantage of rising prices to sell mortgage-backed bonds. Morgan Stanley sold 299 billion yen of bonds backed by mortgages on commercial properties, including apartments in Tokyo and Osaka.
It is planned to allow J-REITs for foreign investments.

In 2001 Korea introduced Korean Real Estate Investment Trust (K-REIT) and Corporate Restructuring REIT (CR-REIT). CR-REIT segment is USD 5 million. Initially, real estate funds mainly invested in office buildings. However, investments in other types of property, such as apartments, dormitories, overseas properties and foreign REITs are on the way.[29]

In 2002 Singapore introduced the first REITs in south-eastern Asia. 5 S-REITs are controlling 5.2 bn in 2005.
Singapore-based CapitaLand Group is one of the largest listed property companies in Asia, operating in 28 countries and 90 cities, also owns listed subsidiaries that are leading players in the region, including CapitaMall Trust (Singapore’s first REIT), CapitaCommercial Trust and Australand Property (one of the largest developers in Australia).[30] Another big REIT, Ascendas Real Estate Investment Trust, owns property throughout Asia and launched Ascendas India IT Parks Fund, which is active in IT parks.

When, in 2003, Honkong introduced REITs financial industries were very interested to observe how this development could open the booming Chinese market. The first listed REITs in Honkong – Link-Reit – was based on the privatisation of public property by the Honkong government’s Housing Authority. The Housing Authority controls 30 % of the housing units of the nearly 7 Mio. Honkong residents. The privatisation plan involved 180 malls, 79 000 car parking spaces, 950 000 square meters commercial land and many housing complexes. Goldman Sachs, HSBC and UBS were the joint global coordinators for the sale. JP Morgan Chase is advising the government. The plan provoked a run on the shares which ware even traded at the black market before the official listing. With 2,54 billion $US shares this REIT was the largest new listing of a REIT in history.

The plan even provoked strong legal reactions by a tenants rights group which feared rent increases, higher prizes in the shops etc.. A 67-year-old public housing tenant, Lo, appealed to the court. She and fellow opponents claimed the deal undervalues public assets, short-changes the public and threatens to lead to rent rises for public housing tenants. The proceedings caused a delay of nearly a year for the listing of LINK-REIT. In December 2005 Lo lost the case. [31]

In Sept. 2006 six public housing residents, who have been running stalls at a market have declared a minor legal victory after successfully staving off a Link REIT management company’s bid to evict them for failing to pay higher license fees.[32]

In 2006 Malaysia was the first Islamic country to certify REITs. Shortly after that the real estate investment trusts (REITs) sector asked for a review of its tax structure.[33] They want a reduction in the existing 28% withholding tax imposed on foreign investors dividends. They say it should to be lower than neighbouring Singapores 10%. The globalisation of REITs of course even leads in a competition on tax dumping between states.

Malaysia even is about to become the first country in Asia where REITs conquer agricultural land (plantation REIT). In Sept. 2006 Boustead Properties Bhd proposed to sell and lease back six estates measuring 6,891ha in Peninsular Malaysia to Al-Hadharah Boustead Real Estate Investment Trust (REIT).[34] Much like conventional REITs, a plantation REITs success will depend largely on the assets injected into the trust. While for conventional REITs the economic success is based on