EPRA’s EU election manifesto calls for solid building blocks in Europe’s property sector #webuildEU

By Diane Mievis, EPRA EU Policy Manager

EU flags waving in front of European Parliament building in Brussels
On May 23, European citizens will vote for the 705 new Members of the European Parliament, who will have a seat until 2024. The political landscape of Europe is changing, so now is the time for our association to maximise the opportunities of the listed real estate sector to secure the future of Europe and its citizens.
While still recovering from a major economic crisis, the European Union (EU) has encountered a series of new challenges over this mandate, including the rise of populism across Europe, Brexit, mitigating climate change and raising more long-term capital. Against this backdrop, more investments in the European economy are urgently needed to address these challenges and further prosperity. The size of the European equity and debt markets is, therefore, a considerable concern that the action plan of the Capital Markets Union (CMU) aimed to amend by trying to raise more capital in Europe. Its stated objectives were clear: “The Capital Markets Union will strengthen the link between savings and growth. It will provide more options and better returns for savers and investors.” Two years after its publication, the Commission’s takeaways[1] remain alarming, citing insufficient investment by insurance companies and pension funds in risk capital equity and infrastructure as well as obstacles to cross-border trade as notable impediments to the growth of the EU economy.
Moreover, the implementation of the Solvency II regulation in January 2016 has been detrimental for the listed real estate sector, not least in terms of diminished opportunities for insurance companies to invest in equities, particularly those considered as non-strategic. The ensuing effect of high capital requirements is that real estate is treated as a short-term asset rather than a long-term investment, a situation further complicated by different jurisdictions in each Member State.
Hence, a swift revision of the rules on solvency capital requirements and more incentives from the CMU project are needed to prevent financial players from opting out of investing in equities due to high capital requirements. Moreover, listed property companies are key actors of society that promote the interests of the communities in which they operate; they improve living standards, boost programmes of social inclusion and skills development, and invest in projects that benefit communities and boost social objectives.
Put simply, the built environment is key not only in the European economy but also in European societies. To further promote a strong, prosperous and sustainable Europe, we propose the following three priorities:

Delivering long-term investments in the European economy

Listed real estate companies have repeatedly proven to yield stable and strong long-term performance for investors, especially pension funds through reliable dividends, effectively contributing to the retirement of millions of people. However, due to the 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. To amend the situation, EPRA believes the Solvency II review needs to include a new subcategory for long-term equity investments, along with a set of reasonable and achievable criteria for investors. Further, EPRA encourages European institutions to finalise the Pan-European Personal Pension Product (PEPP) initiative and Member States to swiftly implement it to facilitate cross-border investments. In addition, tax rules, such as the common corporate tax base (CCTB), need to be made clear, proportionate and voluntary as they can bring some unintended and adverse impact on Real Este Investment Trusts (REITs), which are fundamental to keeping domestic real estate markets stable and balance.

Addressing global challenges

Listed real estate companies have been the frontrunners on climate change and sustainability for many years. As research shows, buildings account for approximately 40% of energy consumption in the EU and 75% of the building stock is energy inefficient, making the listed sector ideally placed to improve a renovation of buildings, which could lead to a cut of total energy consumption and CO2 emissions of 5%.
Just as the listed sector has been spearheading sustainability within the built environment, the EU should continue to lead the way and export its standard on sustainable finance. While sustainability has increasingly become a critical factor for investors, institutions and society alike, this demand has yet to be better reflected in the financial statements of companies. There is a demand for more detailed, consistent and sector-specific information to enable key stakeholder to make more informed decisions with regards to their investments, and financial and non-financial reporting need to get up to speed to match this reality.
The UK exit of the EU is another challenge for businesses and investors on global financial markets. Once the treaty is agreed on both sides, discussions should start as soon as possible on a future trade agreement to ensure financial services continue to flow smoothly post-December 2020.

Boosting growth opportunities

In a time when long-term real estate investments are critical for delivering economic growth, REIT regimes continue to produce strong and stable results. In fact, their ever-increasing popularity demonstrates the growing demand for liquid, transparent and efficient means of investments into real estate assets. This is the conclusion drawn from 14 Member States, representing 85% of the EU GDP, that have already introduced a national REIT regime to maximise returns in a transparent vehicle for tax purposes.
Additional tax areas that needs to be addressed in order to increase cross-border convergence and efficiency concern the Commission’s set of recommendations on Member States withholding tax and the urgent need to launch an EU directive that will facilitate that process by establishing quick and standardised withholding tax (WHT) refund procedures.


EPRA believes that by taking up these three key actions – accelerating long-term investments, boosting growth opportunities and addressing global challenges in which the listed real estate sector plays a crucial role – the EU will be empowered to deliver on its ambitions internally and elevate its leadership externally.

[1] European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, ‘Mid-Term review of the Capital Markets Union Action Plan’, p.4, 08.06.2017.