2. Taylor Wessing
Real Estate News
Commercial real estate remains an attractive investment. Today, more than
ever, investors are seeking to take advantage of opportunities created by
favourable exchange rates and access to foreign capital by investing in
overseas assets.
Our international real estate practice remains highly active and in this, our
latest quarterly report, we outline the trends and developments impacting the
real estate sector across our international network.
Belgium
Market trends: In 2014, rental levels in prime
locations and vacancy rates in prime shopping
centres and high streets remain stable. Brussels and
Antwerp are still the leading commercial cities in
Belgium; both cities registered the highest take-up
volume. Investment activity in the retail market
is expected to improve due to anticipated new
large shopping centre projects. Retail warehousing
projects are dominating the development scene.
Investment activity is picking up - there are fewer
transactions but they are larger in size. In addition,
the activity in the office market has intensified
in 2014, driven by large transactions in the public
sector. Belgium has witnessed an increase in
the office investment market, with prime space
in central locations remaining the most popular
investment. Investors are keen to invest in industrial
property but are hindered by limited available
prime space. Still, moderate growth is expected
throughout 2014 and 2015. Developers, the public
sector and consultants agree that delivering green
buildings is necessary and an achievable challenge
within the budget of a conventional code-compliant
building, although real estate investors and banking
companies are not yet convinced. Moreover,
the demand for residential buildings in the cities
continues to increase. Due to higher density, smaller
dwellings will be needed to produce affordable new
housing in the coming decade.
Regulatory Update: As of July 2014, the retail
permit law in Belgium shifted from a federal law
to regional decrees. The three regions, Flanders,
Brussels and Wallonia all have regional laws
currently in force. This regional regime is complex
for foreign investors and will require up-to-date
advice.
CEE
Market trends: Austria has seen slight growth
which is expected to continue, with Vienna’s
high standards and low vacancy rates making
it one of the most sought-after markets for
commercial property. The Czech Republic has
seen growing interest in commercial property
rentals in city centres and an increase in
investment opportunities in agricultural land. In
Hungary, the commercial real estate investment
market has started to gain momentum,
although Budapest has high numbers of vacant
commercial premises and relatively low rental
levels. In Poland, developers are planning and
building new shopping centres throughout the
country. The high demand for office space in
previous years is encouraging new investment.
This trend also applies in Slovakia, where
developers are interested in delivering new
properties that meet environmental sustainability
standards. Farmland investment and residential
projects at the outskirts of the cities are also
being targeted. In the Ukraine, the real estate
market remains attractive to foreign and national
investors, particularly following the Ukraine/EU
association agreement, with major hotels and
business projects expected in Kiev, Donetsk, Lviv
and Kharkiv.
Regulatory Update: In Austria the new Income
Tax on Profits of Real Estate Transactions
and a new system of court fees for the Land
Registry may lead to increased costs. The new
Civil Code in the Czech Republic introduced a
number of changes which will impact the real
estate arena: we consider this to be the sector’s
regulatory change of the decade. In Hungary,
the ban on building stores, shopping centres or
new retail space exceeding 300sqm is important
3. for international investors and retail chains, as
developers require Ministry consent to build new
malls or supermarkets. In Poland, a recodification
of the Construction Code is scheduled for
October 2014, with significant progress having
been made on deregulation, particularly on the
issuance of construction permits. Legislation
has been initiated in Slovakia regarding the
acquisition of agricultural land with the aim of
introducing protective measures and setting
qualification and eligibility requirements for
farmland owners. Finally, the Ukraine has a new
system of land registration and since November
2013 sales of real estate are only allowed
following the assessment of the plot’s value by
a newly licensed residential appraiser. At present
only around 100 of the 3,500 appraisers have
been relicensed.
China
Market trends: The Chinese domestic property
market has been depressed for quite some time,
except for a few popular e-commerce related,
high profile tourism and pension housing projects.
The stagnated housing market has triggered
liberalisation of house purchase and mortgage
backed loan restrictions in a number of cities as
part of a general economy stimulus plan. Due to
the reduced return rate in the domestic property
market, we increasingly see Chinese developers
and property funds looking to offshore markets.
Regulatory Update: The central and local
governments have issued a new round of land
supply rules. Shanghai has drastically reformed
the industrial land supply rules, which could make
it unattractive to foreign investors. In formulating
the new city master plan, instead of maintaining
or increasing the overall supply of construction
land for any type of property development,
Shanghai has reduced it. The central government
has recently issued similar rules.
The first Chinese REITs have also been launched,
although they are only available to selected high
end private investors rather than open to general
public investors. The Chinese regulatory authority
is still focusing on REITs as an internationally-
adopted real estate financing product.
France
Market trends: Investment in real estate has
reached €11bn, contracting by €1bn in only a
year, a downturn of 8%. The first quarter of
2014 was promising with the sale of four flagship
assets in the CBD, but subsequent quarters have
seen less activity, the market lacking core assets
available for sale. The value-added segment
did see activity encouraged by more flexible
financing conditions.
Regulatory Update: The French government
issued a number of significant modifications
to real estate law: The Law ALUR changed
a number of important laws impacting co-
ownership, the regulation of professional real
estate agents and residential leases. In addition,
it altered a number of planning law provisions
increasing the density and prohibiting the
extension of urban areas and modified the
regulation of polluted areas regarding the
disclosure of information, development projects
and clean-up procedures. The Law Pinel modified
the provisions of the French commercial code
applicable to commercial lease agreements.
4. These rendered the law more ‘tenant-friendly’,
which investors must take into consideration
when investing into French real estate. The
new law disallows the practice whereby tenants
promise not to exercise their break-option(s) in
return for tangible benefits from the landlord,
although it provides exceptions for certain
asset classes, including warehouses and offices.
Another new provision holds that the uncapped
rent of a renewed lease may not be subject to
annual increase of more than 10% of the rent
paid in the previous year. A further new change
obliges landlords to detail every service, tax and
fee which they intend to charge and invoice
to the tenant. Where an item is not explicitly
detailed in the statement, the landlord runs the
risk that he will bear the costs. We are expecting
an implementation order which will specifically
outline the details of this change, but it may put
an end to the classic triple net leases.
On September 5th, 2014, the French and
Luxembourg governments signed a protocol
amending the France-Luxembourg Tax Treaty.
The protocol makes France entitled to tax
capital gains derived by Luxembourg residents
from a sale of shares or other rights in any type
of entity if more than 50 percent of its value
derives directly or indirectly from French real
estate assets. The amendment will enter into
force following ratification by both countries,
and therefore could be effective as early as
January 1st, 2015. Investors holding French real
estate assets through a Luxembourg structure
should therefore consider realising their gains
or restructuring the ownership of these assets
prior to the protocol coming into force. They may
consider using a French OPCI as an alternative
investment vehicle. OPCIs are exempt from
French corporation tax on real estate profits,
but they are regulated investment vehicles
and subject to the control and supervision
of the French financial markets authority
The government has indicated that a further
amendment will concentrate on the taxation of
OPCIs.
Germany
Market trends 2013: The German commercial
property investment market is strong with a total
turn-over in the first half of 2013 of €12.6bn.
This was the highest half-yearly result since
the boom year of 2007. Investments continue
to concentrate on the “big five” cities of Berlin,
Dusseldorf, Frankfurt, Hamburg and Munich,
with office property the dominant use followed
by retail property. Whilst demand is still focused
on core and core-plus assets, there is an increase
in investors willing to take risks in the German
market.
Regulatory Update: The Tenancy Law
Amendment Act came into effect in 2013 and
addresses some of the most pressing issues on
both landlords and tenants in Germany. These
include measures against rapidly rising rents,
incentives to undertake energy efficient works
and improvements to the landlord’s legal position
in the event of rent arrears (known as the
phenomenon of “tenant nomads”).
Singapore
Market trends: The Singapore property market
has been mostly depressed in 2014. The cost of
private residential properties has decreased, the
third straight quarter of price decline. Similarly,
rentals of private residential properties fell by
0.6% in Q2 2014, compared with a 0.7% decline
in Q1 2014. The cost of office space remained
unchanged in Q2, following a small increase in the
previous quarter. On the up side, rentals of office
space rose, growing from the 2.4% increase in Q1
2014. In retail, the cost of shop space declined
in Q2 2014, after remaining unchanged in the
previous quarter. Rentals of retail space increased
in Q2 2014, compared to the decline in the
previous quarter.
5. Regulatory Update: Singapore’s complex
housing market policies include government
control on the use of land and active government
participation in planning, construction, and
housing finance. The last couple of years have
seen drastic regulatory changes, including the
January 2013 measures that seek to lower LTV
limits for non-individual borrowers from 40%
to 20%, of interest to any corporate investors
seeking to invest in Singapore. Another key
regulation announced in 2013 states that under
the Total Debt Servicing ratio, the borrower’s
monthly debt repayment should not exceed
60% of his or her monthly gross income, a
reaction to the growing household debt in
Singapore. In addition, recent amendments to
the Land Acquisition Act seek to update the
compensation framework and improve the land
acquisition process. This is pivotal to Singapore’s
development and the facilitation of the building
of roads, rail infrastructure, schools, hospitals,
industrial parks and public housing for the greater
public good, Recognising the impact on property
owners affected by land acquisition, with stream-
lining and improvements introduced, landowners
now receive the full benefit of market value
compensation of acquired land in Singapore.
UAE
Market Update: The business outlook for Dubai
and the UAE is generally strong. Confidence
appears to have returned and regional troubles
have strengthened its status as a safe haven for
Middle East investment. Both the commercial
and residential property markets have recovered
from their record lows of a few years ago,
although we are now seeing sale and rental
values level out. The retail market remains strong,
with a relatively small number of large malls
dominating, assisted by high-end brands willing
to take premium space. The industrial sector also
remains relatively robust, with a government-
led initiative to shift industry to new open
spaces south of Jebel Ali and around the Dubai
Investment Park.
Regulatory Update: The government has
introduced measures to discourage less
creditworthy developers from entering the
market. These include requiring developers to
provide guarantees of 20% of the construction
cost, and requiring them to pay 100% of the land
costs up front rather than relying on off plan
sales. Property transfer fees have been increased
from 2% to 4%, and mortgage restrictions have
been introduced. The effect of these measures
has been to calm the markets, particularly for
residential property, which is welcomed.
6. UK
Market trends: London continues to remain the
city of choice for international investors on the
look-out for prime commercial, residential and
mixed use assets. This trend is reflected in recent
research which attributes 72% of all investment
in Central London office space over the last
quarter, to overseas investors. The UK Real
Estate practice regularly sees investment coming
into the capital from across the globe, with prime
assets being purchased by Asian, Middle Eastern
and North American buyers.
Investment in London real estate is set to be
a continuing trend. The capital’s population is
fast expanding and a strong commercial and
residential development pipeline is needed to
house the capital’s workforce in the next ten
years. The benefits of this investment can now
also be seen in other parts of the UK, with
investors looking for commercial and residential
opportunities in key regional cities including
Manchester and Liverpool.
Another notable trend is investment in high end
purpose built student accommodation. Reports
in the market indicate an under-supply of luxury
student accommodation, which suggests there
is still room for the sector to grow, especially in
London. There are several reasons as to why
luxury student accommodation continues to
perform strongly, one of which is the ability of
London’s internationally renowned universities to
attract high net worth students from across the
globe. As a result of this constant and relatively
stable demand, real estate funds continue to
demonstrate an appetite for this asset class and
developers remain committed to seeking out
potential development sites. This has had the
knock on effect of increased competition for
prime locations.
Regulation: The UK has an unusual concept
of rights of light which can cause significant
delays on developments – particularly high rise
towers. The Law Commission has now closed
submissions and will be making recommendations
as to changes in the law shortly.
7. The Taylor Wessing team
Key Contacts
Christine Flion
Partner, Brussels
+32 2 289 60 53
c.flion@taylorwessing.com
Cody Chen
Partner, Shanghai
+86 (21) 6247 7247
c.chen@taylorwessing.com
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Do not hesitate to contact a member of the
international team should you have any questions
or topics that you would like to discuss further.
Alexander Scheitz
Partner, Vienna
+43 171 655 150
a.scheitz@taylorwessing.com
Alfred Fink
Partner, Paris
+33 1 72 74 18 17
a.fink@taylorwessing.com
Daniel Ajzensztejn
Partner, Hamburg
+49 (0)40 3 68 03 121
d.ajzensztejn@taylorwessing.com
Jerry Parks
Partner, Dubai
+971 (0) 4 309 1003
j.parks@taylorwessing.com
Anne Chua
Partner, Singapore
+65 6381 6751
Anne.chua@rhtlawtaylorwessing.com
Paul Lawrence
Partner, London
+44 (0)20 7300 4642
p.lawrence@taylorwessing.com
