To unlock capital, face new global challenges such as climate change and immigration, and build the cities of tomorrow, the European Union needs to encourage more stable and cross-border investments aligned with its long-term objectives.
EPRA, the European Public Real Estate Association, believes that the listed real estate sector is part of the solution to empower the EU to deliver on its ambitions internally and elevate its leadership externally and proposes a set of recommendations for the policymakers in order to address these challenges.
1. Delivering long-term investments in the European economy
Listed real estate companies yield stable and strong long-term performance for investors, especially pension funds and insurers, through reliable dividends, effectively contributing to the retirement of millions of Europeans. However, due to substantial solvency capital requirements introduced by Solvency II and its implications for cross-border investment, allocating sufficient capital to public equities for long-term purposes remains a considerable challenge.
EPRA calls for the Solvency II review to include a new subcategory for long-term equity investments, along with a set of achievable criteria for investors. Further, EPRA encourages European institutions to finalise the Pan-European Personal Pension Product and countries to swiftly implement it to facilitate cross-border investments. Additionally, tax rules such as the common corporate tax base need to be made clear, proportionate and voluntary as they can bring unintended and adverse impact on listed real estate companies which are fundamental to keeping domestic financial markets stable and balanced.
2. Addressing global challenges
Listed real estate companies have been the frontrunners on climate change and sustainability for many years. According to research, buildings account for approximately 40% of energy consumption in the EU, making the listed sector ideally placed to renovate the existing building stock which could lead to a cut of total energy consumption and CO2 emissions of 5%.
The EU should continue to lead the way and establish a fit-for-purpose standard with the upcoming Taxonomy on sustainable finance. While sustainability has increasingly become a critical factor for investors, institutions and society alike, financial and non-financial reporting need to get up to speed to match this reality.
3. Boosting growth opportunities
When long-term investments are critical for delivering economic growth, Real Estate Investment Trusts (REIT) regimes continue to produce strong and stable results. 14 Member States, representing 85% of the EU GDP, have already recognised the public benefits by introducing REIT legislation to maximise returns in a tax transparent vehicle. REIT development within the EU should be facilitated through a set of recommendations for an EU REIT regime.
Additional tax area that needs addressing in order to increase cross-border convergence concerns the issues with withholding tax. EPRA urges the Commission to commence work on an EU directive that will establish quick and standardised withholding tax refund procedures.