European
Union: The best deal real estate ever got
Michael MacBrien explains what the EU is doing
for investment and how EPF is shaping the outcome
Pan-European property investment is taken for granted, as if it were some
kind of automatic fallout from 'globalisation'. Yet globalisation is overstated
and overhyped. In a world of sovereign states, where treaties and 'open
markets' are
here today and gone tomorrow, nothing is guaranteed, especially concerning
the right to buy land and buildings. Witness China's recent crackdown
on foreign property investment, about which nobody can do anything.
The only place cross-border property investment is guaranteed is the EU,
because it's not a trading bloc but a union of European citizens founded
on real political institutions and a real Court of Justice that guarantee
the right
for everybody to buy and sell property wherever they want, without obstacle.
The very meaning of 'freedom to invest in property' can range from night
to day, depending on whether you're talking global or European. Globally,
it means, at best, that there's no law formally barring foreigners from
buying local real estate. Beyond that, there can be any amount of controls,
and foreign investors are often a captive market for all local real estate
service providers. In the EU, freedom to invest means the whole package:
Investors are not only free to buy wherever they want, they can use their
own estate agents, valuers, architects and contractors, from the investor's
home country or from anywhere else in the Union. And above all, the EU
means security: these freedoms can never be repealed, no matter how protectionist
the current economic crisis makes the rest of the world.This was not done in a day. It took over 30 years just to get free movement
of capital, the basic building block of cross-border property investment.
Overcoming the meddlers
Then there's the great penchant of national governments to obstruct. The
European Court of Justice had to build up case law neutralising governments
that paid lip service to the principle of freedom to buy property, but
kept inventing niggling administrative requirements for foreigners only.
Only the EU can overcome that kind of bureaucratic interference, and it
does.
New entrants to the Union often have land purchase fears. In the last
big accession wave, several candidate member states tried to retain controls
on property investment for 'transition periods' of up to 18 years. EPF
explained to the European Commission its view that this would undermine
the whole foundation of the EU Internal Market – mortgage lending
in particular – not to mention the damage to local people deprived
of a competitive property market. The Commission took this point and stood
firm.
Recently, there was an attempt to exclude real estate services from the
scope of the Services Directive. That, too, was defeated, but it shows
how resistant local privilege and captive markets are. What's unique about the Union is that it has the tools to go far, cleaning
out anti-competitive practices that a less advanced polity couldn't touch.
There are countries where 'social' or 'municipal' housing companies have
exorbitant privileges, using government subsidy to compete with private
landlords for middle and high income tenants. The Commission followed
up on EPF's complaints and confronted the situation.
On any market, the health of the property industry depends not just on
the services it offers, but on those it receives. The EU competition authorities
have a long tradition of uncovering and dismantling European cartels of
property, goods and services providers. In 2007, lift and escalator cartels
were fined a record €992 million, and property companies can seek
damages on top of that.
A lot of regulation targeting real estate is European: soil protection,
environmental impact assessment, strategic environmental assessment, environmental
liability for contaminated sites, energy and water performance of buildings,
integrated environmental performance of buildings, renewables in buildings,
energy services, work site safety, accounting and valuation rules, mortgage
credit, EU passport for open ended real estate funds, etc. EPF's task
is to help Europe’s authorities – the Commission, European
Parliament and Council of Ministers – draft high quality legislation.
Once the laws exist, it's an advantage for property investors to know
that all this regulation is basically the same throughout the EU and often
beyond, extending to all countries that have even a hope of joining the
Union some day.
Despite all this, pan-European property investment isn't all that it should
be, the cross-border 'boom' coming from a small and recent starting base.
To come into its own, and to reach its full potential in the European
economy, the property industry needs cross-border investment vehicles;
first and foremost an EU REIT. This is high priority for EPF, working
in coalition with the European Landowners' Organization (ELO), RICS, TEGoVA
– the European Group of Valuers Associations, and ULI Europe.
A diet of Brussels?
Not long ago, an EU REIT would have seemed unrealistic, considering the
pooling of national sovereignty it implies, including sensitive tax aspects,
and given the political crisis the EU is in due to the holding up of the
Lisbon Treaty. But Europe thrives on crisis. It will soon be clear to
everyone that, one way or another, the vast majority of member states
seeking easier decision making procedures, more power to the European
Parliament, more European power to national parliaments and to citizens,
and true economic governance of Europe, are indeed going to get it. Those
who don't want it will be able to opt out. Economic governance in particular
implies a more integrated and sophisticated European market and economy,
and the EU REIT will surf on this.
For the property industry, this differentiated, two-tier Europe means
an important foundation for everyone (freedom to invest, safety from cartels,
common worksite health and safety, environmental and energy efficiency
regulation), and a bonus for property companies investing in the advanced
integration states (euro, EU REIT). Can there be too much 'Brussels' for real estate? The answer lies largely
with the industry itself. There are vast areas of real estate, like most
aspects of housing policy, where the EU has no role at all. But mostly,
the Union is like a great frontier where things only happen in real estate
if the industry really wants them to. The EU REIT is a good example. If
the industry itself hadn't felt the need for it, and if it wasn't providing
the solution, nothing would happen.
'Less is best' is wise, of course, but it can sometimes work against the
property industry's best interests. For instance, in the revised Energy
Performance of Buildings Directive, we want EU harmonisation of the categories
of energy performance certificates because global real estate investors
need comparability as part of their international marketing strategy.
They need to be able to advertise, say, that a development just completed
in Stockholm is 20% more energy efficient than the EU building energy
efficiency 'A' grade. For that to happen, there needs to be a common EU
'A' grade! We have the European Parliament's support, but the Commission
fears it could be too much for the member states.
It's a constant struggle, but inspiring, when you remember that this is
legislation for a property market of half a billion people, and that what
we get depends largely on us.
Michael MacBrien
Trained in Belgian and European law, Michael MacBrien has spent his entire
career in the field of European affairs. In the 1980s, at the European
Banking Federation, he worked on the Directives that formed the basis
for the EU Internal Market for Financial Services. In 1994, he co-founded
the European affairs firm MacBrien Cuper Isnard, which provides lobbying
services and advice on the setting up and management of European trade
federations. In 1996-97 he oversaw the foundation of the European Property
Federation and has been its Director General ever since.
European Property Federation
Founded in 1997, the European Property Federation represents all aspects
of property ownership and investment: residential landlords, housing companies,
commercial property investment and development companies, shopping centres
and the property interests of the institutional investors (banks, insurers, pension funds). Members
own and manage property assets valued at €1.1 trillion.headlines
WRITTEN BY MICHAEL MACBRIEN, DIRECTOR GENERAL, THE EUROPEAN PROPERTY FEDERATION
