11 / 2006
At the same time as Britain, the German Federal Government was being bombarded with numerous proposals by an ever more organized REIT Lobby.
The reasons are obvious: The market and the institutional real estate stock in Germany is huge and Germany with it’s export orientated industries can build a prominent platform for invading a lot of other countries. According to business estimations more than 3,000 billion euro “concrete gold” are “sleeping” in German industries, insurances, authorities and municipalities. REITs industry expects that until 2010 real estates worth from 53 up to 130 billion euro can be taken over by REITs. The rents and real estate prices on the large German market compared to the world are inexpensive, the public owners are broke, the industrial enterprises look for own capital funds: A situation which, in the eyes of financial investors, is born for the fast conversion of the social infrastructure into a wild west stock exchange.
In 2004 and the first half of 2005 it seemed to become a closed shop discussion among the financial experts, as usual in most of the other countries. Housing policies until late 2005 did not play any role within the official German REITs-debate.
However, being alarmed by the huge sales of social housing units to financial investors during the past years, some local tenants associations, especially the Ruhr District Tenants Forum became aware about the possible dangers regarding REITs, and started to discuss it in their networks.
In May 2005 the Ruhr Tenants Forum organized a conference with housing politicians, including the regional housing minister, in Dortmund, which even dealt with the REITs-plans. Shortly after that the national tenants umbrella Deutscher Mieterbund (DMB, 1 million members) surprisingly adopted the most critical views and decided to make REITs one of the main issues at their biannual general assembly and the accompanying media events. At the on of the events chancellor Schroeder agreed that the introduction of REITs must be proved even regarding the consequences on housing.
Schroeder and with him the red-green coalition a little later lost the national elections and were replaced by a grand collation of Social Democrats and Conservatives. In the coalition agreement both parties fixed that they will introduce REITs after proofing the financial and housing consequences. For a while it seemed that there was only little to do for the REITs introduction, new models were discussed and Minister of Finance Steinbruck (SPD) announced they would introduce the REITS regulation within 2006.
However, in January 2006 left SPD Members of Parliament, Ortwin Runde and Florian Pronold, remembered a campaign of former SPD-president Muntefering (now vice-chancellor) and compiled an important paper: “Locusts at the door.” (1)
These Members of Parliament described in detail how difficult it is to close tax evasion loopholes created by REITs for international investors. They expect huge gains, including for communal business and property taxes. If the Gordian Knot of tax problems were to be solved, the solution would surely not be what the Finance Lobby promoted: “Looking at the US example, substantial tax privileges that are intertwined with other, are being considered. REITs only pick out the raisins, combined with a rollback in tax politics.” Dissidents feared that, “the existence of REITs would further the insistence of shareholders’ interests. Local stability in Germany would become untied, and potential for speculation in the real estate sector would rise considerably.” Admission of REITs would widen the gap between ‘good’ and ‘bad’ rental apartment stocks and endanger the ‘social balance’.
“We need time”, politicians appealed, “and a broad debate about the consequences of REITs, not just among experts in financial markets, but also with tenant associations, apartment developers and with communities and all those that are not interested in creating an even more attractive menu for international financial capital.”
As a reaction the government created a special committee to convince left Members of Parliament. But that – surprisingly for the financial lobby – was not so easy, simply because the critical arguments were good and true. The promoters of REITs did not manage to convince the critical Social Democrats that REITs are a nice thing. While the government produced long argumentation papers, promised a lot of additional regulations and said that German REITs will help to stop the global buy out of German housing the critical forces within the Social Democrats and on society became stronger.
Among the critics were not only leftists, but even speakers of the German federation of institutional landlords GdW and and of the federation of cities, Deutscher Städtetag. Later in the year even the governments of the federated states Rheinland-Pfalz and Berlin announced fundamental criticism. The case in the public became one of the principal conflicts on pro-investment-orientated neo-liberal policies.
At the same time the financial lobby continued to promote REITs as a great option for strengthening the German financial market, in Germany as well as abroad.
In June 2006 NAREIT, the umbrella of US-REITs, held a large conference in New York, dedicated to foreign REITs investments. Special focus: Asia and Germany. The German guest adviser Hans Volkens at that occasion promoted the great investment chances of German REITs. Within the next 5 years 130 billion euro could be transferred into German REITs. G-REITs surely would come, Volkens said, even if some “left socialists” had intiated an “irrational debate”. “We will beat the Brits”. “We will not allow direct share holdings of 10 % or more. If you want to hold more, it is not prohibited, but you have to use an intermediate company. For institutional investors not a problem.” (2)
Concluding the conference the chair shouted: « The hunt is on. Investors can move capital within minutes around the world. Who will become the hunter and who the hunted? »